IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : C … · 2018-03-25 · (i) GE Power Services...

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCHES : C : NEW DELHI

BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER

AND

MS SUCHITRA KAMBLE, JUDICIAL MEMBER

ITA No.671/Del/2011

Assessment Year : 2001-02

GE Energy Parts Inc., AIFACS Building, 1, Rafi Marg, New Delhi.

PAN: AACCG2798N

Vs. ADIT, Circle-1(2), International Taxation, New Delhi.

(Appellant) (Respondent)

Assessees By : Shri S. Ganesh, Sr. Advocate, Shri Sachit Jolly, Shri Rashi Dhir, Shri Gautam Swarup, Shri Sidhartha Singh & Shri Rahul Sateeja, Advocates

Department By : Shri Sanjeev Sharma, CIT & Shri Anuj Arora, CIT, DR

Date of Hearing : 19.01.2017 Date of Pronouncement : 27.01.2017

ORDER

PER R.S. SYAL, AM:

This appeal by the assessee is directed against the order passed by

the CIT(A) on 30.09.2010in relation to the assessment year 2001-02.

http://www.itatonline.org

ITA No.671/Del/2011

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2. At the outset, it is imperative to mention that there is a batch of 139

appeals by the GE group overseas entities under consideration. The

group has chosen the extant as the lead case. It has been fairly admitted

that there are four broader issues in all or some of the appeals. Two

issues, namely, existence of PE and attribution of profits are common in

all the appeals; issue of reassessment is specific to more than one

hundred appeals, wherever the orders have been passed u/s 147 read

with section 143(3) of the Income-tax Act, 1961 (hereinafter also called

`the Act’) ; and the last issue of interest u/s 234B is in relation to some

of the appeals for the A.Ys. 2007-08 and 2008-09.Submissions were

made by both the sides on all the four issues in this lead case and it was

candidly admitted that the other appeals involve mutatis mutandis

similar issues. In fact, the same arguments were adopted by both the

sides and no separate submissions were made for the remaining 138

appeals. As such, we are espousing the instant appeal for consideration

and ex consequenti, the decision taken on all the four issues will apply to

the remaining 138 appeals to the relevant extent.


ITA No.671/Del/2011

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A. CHALLENGE TO REASSESSMENT

3. The first assail is to the initiation of re-assessment proceedings.

Succinctly, the factual matrix of the case is that the assessee is a

company incorporated in the United States of America and is also a tax

resident of the USA. The assessee is a part of the GE Group, which

makes equipments to the customers in India relating to oil and gas

business, energy business, transportation business and aviation business.

No return of income was filed by the assessee prior to the instant

proceedings. A survey u/s 133A of the Act was conducted at AIFACS

premises, being the Delhi address of Liaison office (LO) of General

Electric International Operations Company Inc. (GEIOC) on 2.3.2007.

Certain incriminating material/documents were found, whose

photocopies were obtained by the Department. Statements of two

persons were also recorded during the course of survey. Certain post-

survey enquiries were conducted. On the basis of the

material/information gathered during the survey and the post-survey

enquiries, the AO issued notices u/s 148 of the Act to 24 entities of the


ITA No.671/Del/2011

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GE Group incorporated in UK, Japan, USA, Germany, Canada, Italy,

Mauritius, Singapore, etc. for different years, including the assessee.

Notice u/s 148 dated 27.03.2008was served on the assessee. A return

declaring nil income was filed on 30.06.2008.Relevant parts of the

reasons recorded have been reproduced on pages 3-23 of the assessment

order, which we will deal with a little later. The assessee, after filing the

return, requested the AO on 30.08.2008 to furnish the reasons, which

were duly supplied. Objections were filed against such reasons on

4.11.2008, which came to be dismissed by the AO vide his order dated

12.11.2008. It is a matter of record that no writ petition was filed by the

assessee against such rejection.

4. Main thrust of the AO’s opinion in initiating re-assessment was that

the assessee was making sales in India with the involvement of its

Permanent Establishment (PE) in India and, accordingly, the profits

attributable to such PE were chargeable to tax. In reaching this

conclusion, the AO held that the assessee had, inter alia, a fixed place

PE as well as a dependent agent PE in India. He deemed 10% of the


ITA No.671/Del/2011

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value of supplies made to the clients in India as the profits arising from

such supplies and 35% of such profit was attributed to the PE in India.

In a nutshell, 3.5% of the total value of supplies made by the assessee to

the customers in India was held to be the income attributable to the PE

in India. As total sales made by the assessee in India during the year

amounted to Rs.19,98,06,676/-, profit at the rate of 3.5% on the same,

amounting to Rs.69,93,234/-, was held to be taxable business income.

The assessee’s grounds against the re-assessment proceedings failed to

convince the ld. CIT(A) as well. Now, the assessee is before us

challenging the initiation of re-assessment.

5. We have heard the rival submissions and perused the relevant

material on record. Before delving into the legality or otherwise of the

initiation of the reassessment proceedings, it is sine qua non to note the

reasons recorded by the AO before issuing the notice u/s 148, which are

as under :-

"A survey u/s 133A of the Income Tax Act, 1961 ("Act") was carried out at

the office premises of General Electric International Operation Company

Inc., India liaison office ("GEIOC”), located at AIFACS, 1 Rafi Marg, New

Delhi-l 10001 on 02.03.2007. The liaison office ('LO") of GEIOC, USA


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was started in India from July 01, 1987. The office was set up to undertake

the liaison activities. From the information available it is seen that GEIOC

has employed various persons and is sending these employees on

assignments to GE entities located worldwide. From this premises, other

entities, incorporated in India as well as non-resident entities of the GE

group are also operating.

2. During the course of survey statement of Shri Rupak Shah, who is

employed with GE Capital Services, India as Tax Manager, but having

extended responsibilities of tax matters relating to all companies of GE

Group in India was recorded. Statement of Shri Chandan Jain, working

with GEIOC, who provides Inter face between GE, USA and GE Business

in lndia, was also recorded. During the course of survey photocopies of

various documents were obtained and the same were inventorized as

Annexures 'A' to 'G'.

3. The GE group (hereinafter: "assessee group/ assessee") was also

requested to furnish various information vide summon u/s 131 of the Act

issued on 02.03.2007. The assessee has furnished the information through

its representative RSM & CO./PricewaterhouseCoopers Pvt. Ltd. vide letter

dated 16.03.2007, 09.04.2007,27.02.2008, 24.03.2008 and 26.03.2008. The

GE Group is a diversified technology, media and financial services

company with products and services ranging from aircraft engines, power

generation, and water processing and security technology to medical

imaging, business and consumer financing, media content and advanced

materials. GE serves customers in more than 100 countries and employees

more than 300,000 people worldwide.

GE has been in India since 1902. All of GE's global businesses have a

presence in India and the Group has become a significant participant in a

wide range of key services, technology and manufacturing industries.

Employment across India exceeds 12000. Over dollar 1billion of exports

from India support GE's global business operations around the world. It has

sourced products. Services and intellectual talent from India for its global


ITA No.671/Del/2011

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businesses. It pioneered the concept of software sourcing from India and is

one of the largest customers for the IT service industry of India.

Various operating companies of the group in India are as below:

A. FINANCE GROUP

(i) GE Capital Services India - A Gurgaon based non-banking finance

company provides commercial finance in India.

(ii) GE Countrywide Financial Services - A Gurgaon based non-

banking finance company dealing in retail finance.

(iii) GE Money Housing Finance - A Gurgaon based company having

NHB license provides housing loans.

(iv) GE Capital Transportation Financial Services Ltd. - Deals in truck

leasing and construction equipments financing.

(v) Maruti Countrywide Auto Finance - GE Group has 37% equity in

the company engaged in financing of Maruti cars.

(vi) GE Corporate Financial Services - A newly formed NBFC

operating from Gurgaon.

(vii) GE Strategic India Investment - A NBFC having portfolio equity

investment in Indian companies.

(viii) SBI Cards & Processed Services Pvt. Ltd. - Deals with SBI credit

cards and GE owns 40% equity of the company.

(ix) GE Business Process Services Management Pvt. Ltd. - GE owns

60% equity of the company while balance is held by SBI and

processes the SBI transactions in India only.

B. INDUSTRIAL GROUP

(i) Wipro GE Ltd. - GE owns 51% equity whereas balance is owned by

Wipro and is engaged in manufacturing and local distribution of

medical diagnostic equipments.

(ii) GE-BEL Ltd. - The joint venture company of GE (74%) and Bharat

Electronics Ltd. (26%) and is engaged in the manufactured and

exports of medical equipments.


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(iii) GE Medical Services Pvt. Ltd. - It manufactures products/ engine

design and software for export and is also in healthcare business

operates in EOU/STEP.

C. POWER SYSTEM

(i) GE Power Services India Ltd. - Engaged in the business of repair

and maintenance of steam turbines and 80% equity owned by GE.

(ii) BHEL-GE Gas Turbine Services Ltd. - GE is holding 51% equity,

whereas the balance is held by BHEL and is engaged in the repair

and services of gas turbines and installation of turbines in India.

D. INFRASTRUCTURE

(i) GE Fanuc Systems - Manufactures industrial machineries.

(ii) GE Thermometric India - GE owns 75% equity and manufactures

various industrial products in Bangalore.

(iii) GE India Industrial Pvt. Ltd. - It has varied businesses in the sectors

of plastic, lighting, energy, power system, transportation etc. Plastic

business is in Baroda, energy is in Delhi and Mumbai,

transportation business deals with Indian Railways locomotive

components. Employees of this company also render services with

regard to sales and procurement by the overseas entities. It also

provides marketing support to energy division of GE. It

manufacturers water filtration equipments in Bangalore. It also has

a training division which caters to the training of employees of GE

in India. It also has business of manufacturing and distribution of

industrial X-ray sheets.

E. SERVICES

(i) GE India Exports - It consists of various companies in STPs and

EOUs, engaged in software export. GE has India innovation centres

in Hyderabad and Bangalore. It is having cards services divisions in

Hyderabad and Bangalore and provides back office support for

transaction processing and call centres. The Hyderabad technology

centre provides services to GE group.


ITA No.671/Del/2011

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(ii) GE India Technology Centre - Located in Bangalore. Provides

software/engineering designs for various businesses globally.

(iii) GE India Business Services Pvt. Ltd. - The payroll of this company

is supported by act India. It provides services relating to European

treasury, international tax (transfer pricing), documentation and IT

support services.

(iv) GE Global Sourcing Pvt. Ltd. - Operating from AIFACS House in

responsible for procurement from India for GE group.

F. The assessee vide letter dated 16.03.2007 in Annexure 10 has

submitted a list of divisions of GE businesses, which are not

conducted either wholly or partly through GE subsidiaries in India

and these are in the following business lines:

• Infrastructure (oil & gas, energy, rail, aircraft engines and

aviation financial services).

• Industrial (equipment services)

• Healthcare (Diagnostic imaging, information technology,

services and bio sciences)

4. Before discussing the contents of various documents, it is

appropriate to state that, GE Group is engaged in various sales activities in

India, for which the business heads are generally expats, who are appointed

to head Indian operations, with the support staff provided by GE India

Industrial Pvt. Ltd. and also by various third parties. These expats are on

the payroll of GE International Inc(hereinafter: GEII)but working for

various businesses of GE Group. After these brief comments, the contents

of various documents are discussed hereunder:

ANNEXURE 'A'

This consists of 125 pages and mostly deals with GE infra division

particularly oil & gas.

• Page 1 to 16 is a copy of Memorandum of Understanding (“MoU”)

for

technology transfer agreement between Bharat Heavy Electricals Ltd. and

Nuovo Pignone S.P.A. for centrifugal compressors. The agreement


ITA No.671/Del/2011

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provides that BHEL and NP had entered into a license agreement, for the

transfer of know-how on CCs in 1971 for the licensed territories. The

MoU would be effective in 2006 and the same is a draft with various

corrections. It is unsigned and various price figures are crossed and new

figures are inserted. The presence of this document in the Indian office

shows that Mr. Ricardo, head of oil & gas business of GE in India has the

role in deciding the prices and negotiating the agreement.

• Page 17 is an e-mail regarding licensing of AD-SYST to sub joint

venture.

• Page 18 is a confidential mail from La Motta of GE Infra & Gas to

various employees of GE Infra Oil & Gas including Procacci Riccardo

regarding the CC licensing to BHEL. This mail refers to "you know the

case of BHEL, as we discussed it, and what is reported in the MoU

reflects the content of the conversation we had (me, you and Riccardo) in

the second half of August, when we were in India negotiating the deal.

Then, you gave me confirmation of the way to include AD-Syst with your

e-mail on September 28". This mail as an example shows that the

negotiating team was in India and this included Riccardo also.

• Page 19 to 31 is again the document titled Memorandum of

Understanding for technology transfer agreement between Bharat Heavy

Electricals Ltd. and Nuovo Pignone S.p.A. for centrifugal compressors.

This is similar to referred in Page 1 to 16 with changes.

• Page 32 and 33 deals with this MoU only.

• Page 34 to 38 is the e-mails relating to GTC-Offer against Reliance

Industries Ltd. ("RIL") enquiry. These are written by Rajendra Singh of

RIL to Mairano of GE Infra Oil & Gas with copies to various employees

of RIL and Procacci Riccardo, Vivek Venkatachalam of GE Infra Oil &

Gas, who are based in India. This mail is with regard to sale of gas turbine

compressor package for compressor station of RIL, KGT-D-6 Block,

Field Development Project.

• Page 39 to 56 is a copy of expression of interest for KG-D-6 Block,

Field


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Development Project, submitted to RIL by GE Oil & Gas, General

Manager and provides information about the products and business of the

company. This is unsigned letter.

• Page 57 is a mail from Fabio to Mr. Rajendra with a copy of

Venkatachalam and Riccardo regarding pricing of exhaust stack

extension.

• Page 58 to 61 is a copy of purchase order for exhaust ducts placed

by Hak International Contractors Asia for supply of 14 units of exhaust

stack of 30 meter height for a value of USD 5,426,568. This is addressed

to Nuovo Pignone S.p.A, Italy. This is also unsigned and a draft order

only. The availability of this document evidences the role of Indian office.

• Page 62 to 69 is again the copy of mails relating to Reliance

purchase order.

• Page 71 is a copy of mail from Vivek Venkatachalam of GE Infra

Oil & Gas, India to Fabio relating to the Reliance order.

• Page 72 to 100 is the documents (technical proposal) with regard to

Bina Refinery India to BHEL made on 27.02.2007. The contact name

shown as Araniti. Danila.

• Page 101 to 122 is a copy of commercial proposal (proposal No.

06.DW, 1056/F/O) with regard to Bina Refinery Ltd. for BHEL. This is

given by Nuovo Pignone S.p.A. It provides the scope of supply and price.

• Page 123 is a forwarding letter to the BHEL regarding the

commercial proposal, which mentions that "please note that the present

proposal is valid only under the collaboration agreement between Nuovo

Pignone S.p.A. and BHEL under finalization between parties.

• Page 124 and 125 also deals with the commercial/ technical

proposal only, for which copies are given to Vivek Venkatachalam and

Procacci Riccardo of GE Infra Oil & Gas, who are located in India.

ANNEXURE 'B'

This has 107 pages.

• Page 1 & 2 is a copy of e-mail from Sunni Krishnan to Nalin Jain of GE


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Transport regarding emerging Indian aircraft/ engine maintenance, repair

and overhaul (MRO market). This indicates that Mr. Nalin Jain is looking

after the GE's aviation business in India.

• Page 3 to 7 is the commercial notes relating to RIL order.

• Page 8 had a description of team for oil & gas business with Riccardo

Procacci as Country Leader India. Various employees shown are J. Lal,

Assistant. Vivek Venkatachalam, Regional Manager, New Unit Sales,

Ujjawal Kumar, ECLP Market Development, Ashok Rodgi, Deven Shukla

Country Manager.

• Page 9 is a page of copy of VISA of Riccardo, which shows that he is

employed with GE International Inc., New Delhi.

• Page 10 is a document showing the opportunities for oil & gas business in

emerging markets, resulting from the meeting in Florence. .

• Page 11 to 21 is again draft copy of MoU for technology transfer

agreement between BHEL and Nuovo. This document has the working for

various figuresgiven in the MoU.

• Page 22 to 25 is the documents relating to Nuovo Pignone general terms

and conditions for sales.

• Page 26 is a mail from Vivek Venkatachalarn to Prat Kumar of GE Infra

with a copy to Riccardo regarding talking points on Reliance.

• Page 27 to 31 is a copy of letter of award for gas turbine

compressor package, dated 31.07.2006 issued by Hak International

Contractors Asia FZE for a price of USD 132,385,553 for supply of gas

turbine compressor train 12 units. This is signed by Ankush Jindal and

placed on Nuovo Pignone.

• Page 32 pertains to Reliance GCT order.

• Page 33 to 56 relates to BHEL order for Bina Refinery. The price for the

engineering designs, materials & testing activities and commissioning etc.

is

given.

• Page 57 is a copy of mail from Prakash of BHEL to Procacci Riccardo

regarding BHEL and NP cooperation for Bina Refinery compressor. A

portion of the mail reads as:

‘Please refer to BHEL purchase order on NP for similar job in past. This

job was dealt through your service Dept. This time we were informed that


ITA No.671/Del/2011

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present job shall be dealt with new sales Dept. and prices shall be

competitive. However, contrary things happened. With this, we do not see

any chances of getting the order.

We draw your attention to the fact that in last two year Euro has

appreciated from 45 Rs to 58 Rs while our competitors currency i.e.

Japanese Yen is static from last two years at 0.4 Rs.

We once again request you to revise your offer for present job in line with

enclosed past similar order either through your new sales Dept. or service

Dept. This will have bearing ongoing collaboration discussions of NP &

BHEL.”

• Page 58 to 63 is the comments on draft MoU for compressors sent by GE

Infra Oil & Gas vide e-mail dated 22.09.2006 (and counter comments from

NP, October 16, 2006).

• Page 64 to 72 is a power point presentation relating to EWPL gas pipeline

project of Reliance Gas Pipelines Ltd. This also provides the delivery

summary.

• Page 73 to 83 is the commercial proposal relating to Bina Oman

Refinery.

• Page 84 and 85 is with regard to GE Infrastructure message from

John Rice.

• Page 86 is a list of 16 employees of GE Global Sourcing India Pvt. Ltd.

This also shows the list of persons who are involved in oil & gas, aviation,

rail and power & systems business. The oil & gas business is headed by

Riccardo of GEII with two people from GE India International, aviation

business is headed Bill Blair and aircraft engines business is looked after

by Nalin Jain, an employee of GE India Industrial, Delhi and aircraft

business is looked after by Ashish Sonawala. The rail business is looked

after Ashfaq Nainar and Ken Pearson, working with GEII and the power

systems business is looked after by local Indian employees.

• Page 87 is having the list of GE businesses. In the infrastructure,

commercial finance, industrial, healthcare and consumer finance business.

• Page 88 shows the details regarding Haldia statutory closure.

• Page 89 and 90 deals with operations review relating to Haldia

project and East West pipeline project. East West pipeline project shows


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that installation is to begin in 3rd quarter of 2007 for 10 sites. Haldia and

Ahmedabad projects, details available on page 90.

• Page 91 is blank.

• Page 92 deals with SBI account ...............lessons learned.

• Page 93 is with regard to Haldia documents retention.

• Page 94 and 95 deals with controllership and tax update India.

• Page 96 and 97 deals with the market dynamics and 2007 outlook. This

page shows the direct orders and influence orders from various companies

working in the oil & gas sector. Key wins included Reliance, IOCL Haldia

and PII through Punj Lloyd. The document also shows that in 2007 strong

start ....... Dollar 136 million + in the bag and reinforce sales team to

improve long term visibility and resources planning.

• Page 98 is a letter from GE Energy Oil & Gas dated 26.06.2006 to

Riccardo Procacci for offering him the role as O&G India leader.

• Page 99 to 101 is a status report on 02.02.2007 regarding BHEL-GE Oil

& Gas CCs license update and also refers to objectives, risks and terms of

agreement.

• Page 102 to 106 is a power point presentation "the seven pillars of

growth" and shows the various additions to the Indian team. Page 103

shows the details of sourcing along with the list of suppliers and the

sourced volume are 17 million, 35 million and 70 million in 2006 to 2008

respectively. Page 102 shows the requisition engineering COE and number

of engineers recruited. Page 104 provides details of various partnerships.

Page 106 relating to expand sales teams refers to "develop qualified

pipeline of opportunities......expand customer

Base......two top talent added. The seven pillars of growth refers to:

� Expand sales team

� Localize ITO support

� Partnerships

� Local sourcing

� Localize service

� Leverage local engineering COE

� Maximize infra synergies


ITA No.671/Del/2011

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• Page 107 is the GME profile and compensation worksheet of Riccardo

Procacci on 01.02.2007, who is on assignment with GE Infra Oil & Gas.

ANNEXURE 'C'

This contains 49 pages and has the details of employees working in

AIFCAS building regarding their names, designation, employing legal

entity, employed since, working for the company, job description, reporting

manager, incentive compensation, appraisal report and employment letter.

In respect of some employees, the information is as below:

• Partha Ranjan Dey is working as Site Leader and reporting to Riccardo

Procacci and the job description is sourcing.

• Amit Verma is a Junior Buyer and is engaged in sourcing and reporting to

Riccardo Procacci.

• Jagdish Lal is the Secretary and reporting to Riccardo Procacci.

• Pravinna Yagnam Bhat is Executive Assistant and reporting to Prat

Kumar.

• Udit Gaurav Kachru is reporting to Ashfaq Nainar and his job

description is "manager in country sales for all locomotive products

including new

locomotives, modernization parts and services and his incentive is based on

sales targets".

• Ashok Singh, working as Project Manager and reports to Ashfaq

Nainar and his job description is 'proposals for locomotive parts systems

and sales'.

• Yashdeep Sule is responsible for sales and marketing for signalling

and

locomotive.

• Pritam Kumar is reporting to Pierre Camte and his job description is "as

market strategy manager for GE Transportation, look for opportunities for

products like locomotives, signalling and also suggest strategy to enter the

market, come out with product strategy and help sales bid in the projects".

• Himali Arora, Manager Finance, reporting to K. Mcbride.

• Ramkrishna Keshav has rotational assignments of six months each in

aviation business.


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• Nalin Jain, Sales Director for aviation division reports to WiIliam Blair

and his job description is "market intelligence and support to head

quarters".

• Udit Gaurav Kachru, who is working as Vice President, Enterprise Sales

(Reporting to Mr. Pramod Bhasin). In the accomplishments:

"1.0 GECIS Global- BD FP & A

1.a Core member of finance team working on the divestment of GECIS

which

was the largest transaction in the ITES in India. (emphasis by this

office)

1. b Led the creation of pro forma financials for the new company &

resolving specific banker, investor and customer queries on the financial

position& strength of the business.

1.c Led creation & the soft audit (Comfort Letter) by KPMG of prior year

financials to prepare for IPO requirements

1.d Evaluated potential synergies for first acquisition for act from list

candidates including Creditek, (since acquired)."

3.0 India Growth Team - Enterprise Sales (Sep 2005)

3.a Helped define India Enterprises Sales strategy (go-to-market approach

&corporate accounts)

3.b Established strong linkages across GE businesses to drive projects

3.c Grew the corporate ES deal pipeline from $30MM to in excess of $ 800

MM. Have established cross business teams to address each identified

opportunity (Tata Steel, Medicity, RIL Healthcare, Container Corp., Ashok

Leyland).

3.d Led the first GE Customer Day in India with Ashok Leyland & eight

GE businesses." He also received management award (GECIS Global

2004).

• Anjali Sinha, hired 25 students from 14 management schools as per

targets and she is Manager, Human Resources.

• Page No. 49 is a list of employees working in the AIFACS building.

ANNEXURE 'D'

This consists of 52 pages.


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•Page 1 to 3 is a copy of lease deal with regard to leasing of house i.e. 4,

Panchsheel Marg, Chanakya Purl, New Delhi for Mr. Scott R. Bayman of

General Electric Company Inc., liaison office for the period 01.07.2004 to

30.06.2007 for annual rental value of Rs.l crore.

• Page 4 to 9 is a copy of house lease deed dated 01.07.2005 for leasing of

house i.e. D-79, Citi Apartments, Vasundhara Enclave, by Mr. Iqbal Singh

to General Electric International Co. Inc. at monthly rent of Rs.6,250/-

• Page 10 is a copy of letter dated 22.08.2003 from RBI, New Delhi for

extension of time of the permission u/s 6(6) of the Foreign Exchange

Management Act, 1999 to M/s General Electric International Operation Co.

Inc.

• Page 11 & 12 is a letter from PricewaterhouseCoopers Pvt. Ltd. relating to

change of nodal office from Mumbai to New Delhi with regard to GEIOC

liaison office.

• Page 13 is a list of employees of GEIOC, showing names, department,

gross salary and constituents thereof. The most of the employees are in the

CAS Auditor Department.

•Page 14 mentions the names of three companies i.e. GE International

Operation Co. Inc., GE International Inc. and GE India Industrial Pvt. Ltd.

• Page 15 is a letter from RBI regarding extension of time for permission

under section 6(6) of FEMA, 1999, for the liaison office of General

Electric

International Operations Co. Inc., by which the permission is extended up

to 31.08.2009.

• Page 16 to 32 is a copy of bank statement of GE International Operations

Co. Inc. with Citi Bank for the period 31.12.2006 to 31.01.2007 and shows

various withdrawals.

Page 33 .& 34 is RBI letter dated 01.07.1987 regarding establishing a

liaison office of General Electric International Operations Co. Inc. at

Bombay & Calcutta for a period of 2 years for the purpose of undertaking

purely liaison activities i.e, to act as a communication channel between

head office and its customers in India.


ITA No.671/Del/2011

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• Page 35 to 37 is a copy of lease agreement between AIFACS (All India

Fine Arts and Crafts Society), renewing the lease for the period 01.03.2007

to 28.02.2008, by which GEIOC has taken AIFACS building on lease. The

rental is Rs.3,139,620/- for all three floors and other space.

• Page 38 to 43 is another house lease deal for obtaining a house for use as

a residence for the employee of GEIOC.

• Page 44 to 52 is another lease deal for obtaining a house for use as a

residence for the employee of GEIOC.

ANNEXURE 'E'

It contains 125 pages.

• Page 1 & 2 is a copy of e-mail from/to Riccardo Procacci, India

Country Leader of GE Infrastructure Oil & Gas relating to PRM Systems

project and refers to the strategy relating to the GE business. The mail from

La Motta, Giuseppe dated 23.11.2006, is to various persons including

Procacci Riccardo, Vivek Venkatachalam of GE Infra Oil & Gas and

relates to PRM systems project and BHEL project and the relevant portion,

showing the presence of sales team in India reads as below:

"Dear All,

In order to perform our simple evaluation I think what we need is:

•From sales team (Vivek and Riccardo) the potential number of orders

year-by-year (number of orders and single amount)...........”

• Page 3 has the mail from Prashant Deshpande of L&T Mumbai regarding

the enquiry relating to its client IOCL, Baroda; the enquiry was given to

Mr. VivekVenkatachalam, Neeraj Saxena (GEMS, India) and Mr. Procacci

relating to reciprocating compressors of hydrogen generation unit for

IOCL, Baroda.

• Page 4 to 7 relates to the enquiry of reciprocating compressors for IOCL,

Baroda. Page No. 7 is a mail from J.K. Khandelwal, Vice President-Sales

& Marketing to Mr. Nicola of GE Infra Oil & Gas and copy to other

persons of GE Infra Oil & Gas including Jagdish J. requesting a authority

letter indicating M/s General Energy Management Systems Pvt. Ltd., New

Delhi as the authorized representative of GE Infra Oil & Gas. It mentions

that Nuovo Pignone has regularly participating in the various pipeline

projects.


ITA No.671/Del/2011

19

• Page 8 & 11 is a copy of mail from Riccardo Procacci, in which he is

introducing himself as the newly appointed GE Oil & Gas. India Country

Leader based in Delhi.

•Page 9 & 10 is a copy of mail from Senior Manager of Bharat Pumps and

Compressors Ltd., addressed to Rajesh Gupta of GE Infra Oil & Gas with a

copy to Vivek Vekatachalam and has details regarding draft of MoU.

Rajesh Gupta has forwarded this mail to Riccardo Procacci fix his

attention.

• Page 12 to 17 are e-mails containing the draft MoU and the various terms

and conditions relating to Bharat Pumps and Compressors Ltd.

requirements and evidences the involvement of Mr. Procacci, Rajesh Gupta

and Vivek Venkataehalam in the business of GE Infra Oil & Gas in India.

• Page 18 to 20 is a copy of mails relating to MoU for Pumps Fort IOCL,

Mundra - Panipat pipeline and again shows the involvement of GE Infra

Oil & Gas team in India consisting of Riccardo Procacci, Vivek

Venkatachalam and Rajesh Gupta. The mail from Rajesh Gupta of GE

Infra Oil & Gas on page 20 is very important, which evidences the

involvement of the Indian team in deciding the payment terms.

• Page 21 is a copy of mail from Ashish Sethi of GE Infra Energy to

Riccardo Procacci.

• Page 22 & 23 is a mail from Riccardo Procacci regarding possible

cooperation in the PMRS segment with Nirmal.

• Page 24 to 30 are the e-mail correspondence relating to power of attorney

given by GE Infra Oil & Gas to Riccardo Procacci and Rahul V. The power

of attorney in Riccardo and Rahul's hands is modified according to the

recommendation of the Indian consultant from RSM. It also refers to

another power of attorney in the name of Harshita. Copy of mail from

Rahul V. Bhalinge dated 27.12.2006 is very important, which is supported

by a mail from Rajeev/Panki of RSM appearing at page 24. The mail from

Rahul reads as below:

"Team

Pls. see the below comments from RSM (GE Corporate Tax consultants in

India). To avoid any Permanent Establishment (PE) risk for the Project

Office (PO) they have suggested the necessary changes to our current PoAs


ITA No.671/Del/2011

20

and limit the authorization to merely bank management and representation

in from of regulatory bodies. This has been suggested considering that

Riccardo P, Rahul B & Harshita S (GEIOC MF - available option) need to

be the signing authorities for the bank account and that they are not directly

linked to PO operations. Agnese, Fiorella - need to do the following asap:

1. Need to issue fresh PoA to Riccardo, Harshita & myself (backup)

as per the comments below

2. Get the PoAs consularized by Indian embassy in Italy..... I just

confirmed this from the bank about this new requirement

3. For any additional responsibilities like procurement sale of office

equipment, services etc. (business transactions0 the suggestion is to only

have employees linked directly to the Project Office to have the PoA - we

may decide about this once we have the GE resident engineer in

Ahmedabad

4. Revoke the current PoAs for Riccardo & Rahul. We will have to

expedite the above actions as the 3 PO bank accounts in India are w/o

authorized signatories and we are not able to issue any cheques locally. Pls.

let me know if there are any more queries...

Thanks

Rahul"

• Page 31 to 85 - me photocopy of excel documents, sent by Barbara to

Riccardo, relating to India sales for 2004, 2005 and 2006. The same gives

the name of customer, customer number, date of invoice, the place of

delivery, order number, amount, region, name of manufacturer etc.

• Page 86 & 87 is an e-mail from Vivek (Venkatachalam) to Ciao Riccardo,

which mentions that "I would want you to make Vittorio understand that we

cannot change the payment terms completely.....".

• Page 88 to 98 pertains to WHRU proposal of Reliance regarding total

base scope price and the value of contract is Euro 5,849,293 and mentions

the scope of supply, deliveries, various clarifications and the mails are

evidence of involvement of Vivek and Riccardo in the deal. Particularly a

mail from R. Balaji of Reliance Industries Ltd. (page 93) is important and

this reads as below:


ITA No.671/Del/2011

21

" is moving away from various commitments and are talking in different

voices. This is not the essence of our agreement. I want GE representatives

to come over and discuss the matter and sign-off. Unless that is done GE

will do shifting of stances, as they have done now. This has to happen fast,

before we issue the Change Order. I can see a lot of changes from what we

discussed recently with Mr. Riccardo and Mr. Vivek at DAKC .'

• Page 99 is a attachment 1 (Unit prices for products to LOA) relating to

Reliance proposal.

• Page 100 to 104 is a letter of award for waste heat recovery units from

Reliance Industries Ltd. dated December 2006 to M/s Nuovo Pignone Spa,

Italy.

• Page 105 to 125 deals with the technical services agreement, copy of

agreement and the correspondence related thereto. In these documents the

role of Vivek Venkarachalam, Riccardo Procacci and Jaimin Shah are

clearly brought out. The correspondence also shows that the GE has signed

several contracts with Reliance for the Jamnagar expansion and associated

plans (this is separate from the pipeline order). Page 124, a mail from

Vivek to Rob regarding technical services agreement - request confirmation

to the draft agreement, wherein Vivek writes that "I will not be available in

office for some days.........Jaimin will coordinate for services".

ANNEXURE 'F'

It contains 27 pages and contains the e-mails relating to GE Infra Aviation

business.

•Page I to 6 is a copy of power of attorney granted by Claudio Santiago

Ponsa, Vice President of the company Nuovo Pignone Spa to Riccardo

Procacci with regard to various acts. It also states that the above powers

and functions shall be exercised only within the frame of the policies and

directions established by the company management within the LTSA

contract - the Arvind Mills regarding Naroda and Santage plant in

Ahmedabad. India and for the O&M contract regarding Haldia Petro

Chemical Co-generation Ltd. plant.

• Page 7 & 8 is the working of 54 million dollar incremental revenue for

GE in next 3 years and revenue from selling compressors (44 million),


ITA No.671/Del/2011

22

revenue from supervision of assembly on foundation at customer facility (6

million) and revenue from supervision of assembly and testing of

compressor at the packager facility (4 million).

• Page 9 is a mail from Riccardo Procacci to Ashok of GE Infra Energy,

dated 23.02.2007 asking the name of people to be added in the O&G India

distribution list. Ashok writes that project related information is - Ashok

Rodgi, Balasubramanyan, Sunder Rajan MB (GE Infra, Energy) and V.C.

Arunachalam(GE Infra, Energy).

• Page 10 to 14 relates to TSA for GE supplied compressors. This shows

that Chaini, Nitin, Gakhar, Ashwin and Jaimin Shah of GE Infra Energy are

working for the GE Infra business in India. The purchase orders are issued

on GE Oil & Gas LLC, USA, GE Oil & Gas Thermodyn, France and GE

Oil & Gas Nuovo Pignone Spa, Italy. The mail states that Jaimin Shah is

handling all the recent GE orders. Ravi Kumar of Reliance writes that "we

do not have problem in issuing 3 TSAs for three GE entities ". The copy of

mail is also given to Rajesh Gupta of GE Infra Oil & Gas.

• Page 15 & 16 is a mail from/to Nalin Jain, GE Transportation, aircraft

engines, sales Director South Asia Pacific.

• Page 17 is a mail from Nalin Jain to William Blair of GE Infra, Aviation,

USA regarding Jet-LH partnership. Nalin Jain has address of AIFACS, 1

Rafi Marg, New Delhi, India.

• Page 18 & 19 is a mail from S.N. Chinhara, SAWO, for DGCA to John

Calvin regarding renewal of approval of GE Aircraft Engine Services Ltd.

Mr. Calvin John of GE Infra Aviation writes that the renewal fee will be

paid locally by General Electric representative in India Mr. Nalin Jain.

Later on, Mr. Calvin John writes that unfortunately the GE rap in India will

not be able to pay the fee.

• Page 20 to 23 regarding the engine for Air India Express.

• Page 24 to 26 is regarding engine No. 874582 and shows the involvement

of Nalin Jain of GE Infra Aviation in India.

• Page 27 is the list of employees of GE International Operations Co. Inc.,

GE International Inc., GE India Industrial Pvt. Ltd. (Training Division), GE

India Industrial Pvt. Ltd. (Marketing & Support Division), GE India

Industrial Pvt. Ltd. (Transportation Division).


ITA No.671/Del/2011

23

ANNEXURE 'G'

It contains 31 pages .

•Page 1 to 15 is the statutory audit report for the year ended 31.12.2005 of

General Electric International Operations Co. Inc. (India Liaison Office).

This shows expenses of Rs.367,200,008/- for the year ended 31.03.2005

and expenses of Rs.282,543,488/- for the year ended 31.03.2004.

• Page 16 relates to locomotive PPP with Indian Railways, which provides

that GE to provide high margin products (through GE-majority owned

facilities) as supply inputs into the PPP.

• Page 17 & 18 gives a list of 2006 key highlights in the business of

aviation, rail, oil & gas, energy, EFS, GECAS, commercial finance,

consumer finance, healthcare and enterprise in India. The details of

customers, activity and size of the deal.

� It shows that in aviation segment business of 320 engines for Air

India, Indian, Jet Airways, Air Sahara, Spice Jet and Go Air took place.

� In the rail sector locomotive parts and 16 marine engines, MMRDA

boot project. In the oil & gas sector 17 gas turbines and compressors to

Reliance were given.

� In energy services for Dabhol, 2 x 9E + steam turbine to

Kerbalapitya Sri Lanka and 6 gas turbines to Reliance.

� In case of GECAS, aircrafts to Indigo and Go Airlines.

� In commercial finance, deal for Sanghi, DLF etc.

� In consumer finance, number 2 issuer of credit cards (Surpassed

HDFC, 3 million cards).

� In healthcare, BGS and Manipal, GE Healthcare approach and

various activities for the first time in India.

� In the enterprise business Gujarat Desalination, AIIMS and

Medicity.

• Page 19 & 20 gives the details of operating plan of OE in India for

February, 2007, in the sectors of healthcare, consumer finance, commercial

finance, industrial and infrastructure.

• Page 21 to 23 is a copy of e-mail from Aashish Sonawala of GECAS

dated 14.02.2007 to Chandan Jain (GE Corporate) on the subject GECAS

growth council. Page 22 has estimated financials of GECAS for the years


ITA No.671/Del/2011

24

2006 to 2010. In this sheet the details of revenue, exposure, return on

income, return on expenditure and net income are given. The mail also

states the requirement of aircrafts by Indian Airlines.

• is a mail from Nalin Jain of GE Infra Aviation to Chandan Jain

regarding news release-Indian Airlines, CFM sign MRO joint venture

agreement. CFM International is a joint venture company. wherein 50% is

held by General Electric Company.

Page 25 is a mail from Amar Navin of GE Corporate to Badal Bagri and

Chandan Jain of GE Corporate and relates to authority to sign HR related

documents for oil & gas. This shows that Anjali Sinha has the authority to

sign the HR related documents and she is supporting the HR of GE Oil &

Gas. She is also signing the HR documents for GE Transportation - Rail,

Aviation and Signalling, Training Division (including corporate growth

services and global business solutions).

• Page 26 is blank.

• Page 27 is a mail from Harshita Sabharwal of GE Corporate dated

17.02.2007 to Chandan Jain regarding repatriation of surplus funds in

GEIBS. The mail reads as:

"There are surplus funds in GEIBS which need to be repatriated to US ..

out of the various options available buy back is the most appropriate from a

tax perspective ... Rupak has engaged RSM for this ... first trance of the

transaction needs to be executed by 31st March'07 ... I am working on this

.. wanted to keep you informed."

Another mail is from Harshita Sabharwal dated 09.01.2007 to Rupak Shah,

Bhalla Manoj of GE Corporate regarding repatriation of surplus fund and

reads as below:

"Please refer to our discussions on the above subject in the last Board

Meeting. Total surplus funds in GEIBS as on 31/12/2006INR 1,000 MM

The best option of repatriating the funds will be through a share buy back

as it does not have any Income Tax implications. The flow will be as under:

FY 2006-07

Limited to the extent of 25% of paid up capital plus free reserves and

number of shares ... this will be INR 250 MM .. to be executed by

March'07.


ITA No.671/Del/2011

25

FY 2007-08

Limited to the extent of 25% of paid up capital plus free reserves and

number of shares ... this will be INR 450 MM .. to be executed by

March/OB.

Total remittance INR 700 MM

Please let us know your views.. it is important that the first trance can be

executed before March'07 as buy back limits for a financial year.'

•Page 28 & 29 is a report from BSR & Co. in connection with the buy back

of equity shares by GE India Business Services Pvt. Ltd. The report is

dated 26.02.2007.

•Page 30 is a status of CAS audit for the year 2004, 2005 and 2006 for the

businesses like healthcare. finance, GE Money, consumer and industrial,

infrastructure and capital corporate.

• Page 31 gives a list of 26 legal entities of the GE group operating in India.

POST SURVEY ENQUIRIES

During the course of survey it was found that various employees of GE

overseas entities are working in India. Some of these employees are on the

payroll of GE International Inc., USA. These are:

• Dan Nalawade

• Riccardo Procacci

• Wllliam Blair

• Ashfaq Nainar

• Kenneth Peirson

• Sameer Aggarwal

• Prat Kumar

These persons are working for various direct businesses of the GE group in

India, which are neither being conducted through a subsidiary or joint

venture company. These persons are India Head of different businesses and


ITA No.671/Del/2011

26

they are being supported by a team of persons, who are employed by either

GE India Industrial Pvt. Ltd. or other group concern. The employees

working on the payroll of GEIOC are also supporting the various direct

businesses of GE group. The assessee was asked to submit the information

regarding the above employees particularly the copy of employment

(assignment) letters, job responsibilities, self appraisal etc., part of this

information was submitted by the assessee vide letter dated

16.03.2007/09.04.2007. A brief of various businesses not conducted

through GE subsidiaries in India either wholly or partly (submitted by the

assessee as Annexure-l0 of letter dated 16.03.2007), is given below:

INFRASTRUCTURE

• Oil & Gas

• Energy

• Rail

• Aircraft Engines

• Aviation Financial Services

INDUSTRIAL

• Equipment Services

HEALTHCARE

• Diagnostic Imaging

• Information Technology

• Services

• Bio Science

The assessee in Annexure-l2 of the letter dated 16.03.2007 has submitted a

list of third party agents of the group in India for carrying out the business

and this reads as below:

3rd Party Liaison Agents in India

Products/Services Covered

Brief description of allowed activities

Clarke Energy India Private Limited

Jen bacher units and aftermarket parts

Intermediary with customer (deliver proposals to customer etc.). Has no legal


ITA No.671/Del/2011

27

authority to bind GE.

Quantum Consultants. Private Limited

Wind Generation equipment

Intermediary with customer (deliver proposals to customer etc.). Has no legal authority to bind GE.

General Sales Co. Ltd Optimization Services - Bently Nevada


PCL Limited

NRPS-IED Products-M&D. Portable Test


Prince Corporation Power Generation – Parts Repair Services, Field Services.


The assessee in Annexure-l1 of the letter dated 16.03.2007 has submitted

the job responsibilities of 5 persons namely Pratyush Kumar, GE

Infrastructure Leader, India, Dan Nalawade, GE Equipment Services,

Kenneth Peirson, GE Transportation, William L. Blair, GE Aviation

(Aircraft Engine/ Transportation), Sameer Agarwal, GE Water Process &

Technology. The job responsibilities of Ashfaq Nainar, Regional Managing

Director, Asia were submitted as Annexure-4 of the letter dated

09.04.2007. The detail of job responsibilities and work attended by

Riccardo Procacciis already discussed. Ashfaq Nainar, in his self appraisal

dated 09.03.2007 (which was submitted as Annexure-5 of the letter dated


ITA No.671/Del/2011

28

09.04.2007), has given the details of work attended by him for GE business

in India.

The assessee in the Annexure-13 to the letter dated 16.03.2007 has

submitted the names of employees of GE India Industrial Pvt. Ltd., who are

working for other GE group entities/ business in India. These are 43

employees, who are working for other group entities and these are Nand

Kumar Dhekne, Sujoy Ghosh, Pramod Joshi, Alpana Khera, Faizi

Mohisini, Ninnala Murthy, Jaimin Shah, Baldeep Singh, Shannila

Barathan, Ravi Anand, Anand Bansal, Haridas' Menon, Chandan

Guha,Anand Awasthy, Ramgopal Yadavalli, Narendran Mannazhi, Ashish

Malhotra, Srinivas K. Marella, Tarak B. Chayya, N. Guruprasad, Deven

Shukla, Hitangshu Majumdar, Siddhartha Ghosal, Manish Narula, N.

Nagraj, Sudipta Saha, Neeraj Bhargava, Shantanu Chakraborty, Shashank

Naik, Parag Nag. Srikanth Thorapalli Venugopal, Sanjeev Kumar, Hemlata

Singh, Archana Singh, Asim Bose, Geeta Taneja, Suman Nag, Nalin Jain,

Sanjeev Kakkar, Mangal Dev, Vivek Venkatachalam, Rajesh Gupta and

Amit Verma.

From the information available during the surveyor afterwards. it is clear

that various employees of GE India Industrial Pvt. Ltd. are working with

the expatriates so as to constitute Indian teams looking after the GE

overseas entities businesses. The detail of such employees is also available

in Annexure-C, discussed earlier.

The assessee was asked to submit the copy of self appraisal of the 7

employees of the GE group, who are on the payroll of GE International Inc.

The same is replied vide para 3.4 of the letter dated 16.03.2007 and self

appraisal of Kenneth Peirson was submitted as Annexure-16 of the letter.

6. On the basis of various facts/information collected during the

survey and afterwards, it is clear that various GE group entities are carrying

out the business in India. The details of such businesses and the sales made

by various entities during the period 01.04.2000 to 31.03.2006 (financial

year wise) are submitted by the assessee vide letter dated 24.03.2008.


ITA No.671/Del/2011

29

Further information is furnished on 26.03.2008. The group has made sales

in the energy, transportation, aviation, oil & gas sectors during all these

years. The names of various companies making the sales are available in

these letters dated 27.02.2008, 24.03.2008 and 26.03.2008 and are annexed

as Exhibit 'A', 'B' and 'C'. Such companies and the line of business relevant

to India are summarized as under:

S. No.

Name of the Company Country Businesses

ENERGY BUSINESS

1 GE Japan Limited Japan Power Generation

2 GE Power Systems Inc. USA ...do...

3 GE Jenbachet GmbH Austria ...do...

4 GE Company USA ...do...

5 GEWE, GmbH Germany ...do...

6 GE Energy (USA) LLC USA ...do...

7 Bentley Nevada LLC USA OC/ Equipment

8 GE Harris Energy Control Systems LLC

USA NBPS

9 GE Canada Canada ...do...

10 GE Company USA ...do...

11 GE Energy Parts Inc.

USA

CS/ Equipment/ Services

12 GE Packaged Power Inc. USA ...do ..

13 GE Energy Parts Inc.. USA -

TRANSPORTATION

14

GE Transportation Parts, LLC

USA

.

AVIATION

15

GE Company

USA

GE Legal Entities - Supplies j

16 GEES Distribution LLC ...do...

17 GE International Inc.

USA

GE Legal Entities -Services

18 Elano USA ...do...

19 Garrett Aviation Services USA ...do...


ITA No.671/Del/2011

30

Inc.

20

GE Accessory Services - Grand Prairie, Inc.

USA

...do...

21. GE Structured Services USA ...do...

22 GE Aviation Materials LP USA ...do...

23 GE Caledonian Ltd. UK ...do...

24 GE Engine Services, Inc. USA ...do...

25

GE Engine Services Malaysia

Malaysia

...do...

26

GE Engine Services McAllen

USA

...do...

27 GE Aircraft Services Ltd. UK ..do...

28 Tri-Remanufacturing Inc. USA ...do...

29 GE Aviation Services Operation Pte. Ltd.

Singapore

...do...

30

GE On Wing Support Korea

Korea

..do...

31 MRA Systems Inc USA --do…

32 Aircraft Parts Corporation USA …do….

33 Unison USA ..do...

OIL & GAS - PARTS &EQUIPMENTS

34 Nuovo Pignone Spa Italy

The information about oil & gas business, showing by Nuovo Pignone

Spa, Italy during F.Ys. 2000-01 to 2005-06 were submitted by Price

Waterhouse Coopers Pvt. Ltd. on 27.02.2008.

The information submitted reveals that the GE group entities have made

sales of equipment/parts in energy business, transportation business and

aviation business. Some of the companies have also rendered services to

the customers in India.

6.1 General Electric International Operation Co. Inc., India liaison office

(GEIOC), has on its payroll more than 50 employees and the designation

of such employees is CAS. The assessee has explained that employees are


ITA No.671/Del/2011

31

deputed to various GE companies and they work as their employees and

such employees remain on the payroll of GEIOC till the same are

transferred to other entities. As per the application made to RBI and

permission obtained, the liaison office was to act as a communication

channel between the head office and the customers in India. However, the

company instead of undertaking the permitted activities is employing

various persons and providing the services of such persons to the GE

group entities worldwide. The company performs all the functions relating

to such employees, including their employment, payroll administration,

the activities relating to deputation etc. and such activities constitutes

business activities being carried out in India. The expenses incurred by

such office are reimbursed by the head office without any margin.

Independent third parties providing such services will certainly earn

profits on the activities. The activities indicate that the GEIOC is carrying

out business in India through a Permanent Establishment (PE) and the

income attributable to such PE is taxable in India. The company has not

filed return of income for any year.

7. The business of various GE group non-resident companies in India is

being conducted by the expatriate employees of GE Group (who are

employed by GE group company and deputed to India as India Head of

the specific business like oil & gas, energy, aviation, transportation etc.),

with the support and help of employees drawn from GE Indian entities.

Such expatriates are responsible and look after the business of GE group

as a whole irrespective of the any GE group company making sales in

India. The bifurcation of sales by various entities is decided by the GE

management, as is evidenced by the Reliance order referred above. These

expats and their team have at their disposal a fixed place of business in the

form of office premises at AIFACS, 1 Rafi Marg, New Delhi. This office

premise is taken on lease by GEIOC from AIFACS (All India Fine Arts

and Craft Society) and has been under lease from the period prior to

01.04.2000. The information regarding the employees of GE in India prior

to the present expats is not given by the GE group, however, there have

been the persons working for such sales throughout the period 01.04.2000

to till date. To summarize, the ex pats deputed in India for undertaking the


ITA No.671/Del/2011

32

marketing activities including price negotiation, supervision,

administration, sale functions and after sales activities and their team were

continuously carrying out the business of various entities of the GE group,

which made sales in India from the above stated office premises in Delhi

and other places of businesses in India. Since:

• A place of business is available at disposal of the GE group entities in

India.

• The place of business was fixed and the business was carried out through

that place of business.

Some employees of the GE group Indian entities forming part of the sales

team were also carrying out the business through other fixed place of

business in the form of other offices of the GE group in India.

In view of the above. it is clear that the various GE group entities, being

tax residents of different countries had fixed place PE in India as per the

provisions of respective tax treaties. The office as well as the premises

used as a sales outlet or for receiving or soliciting orders also constitutes

the PE as provided in paragraph 2 of Article 5 of respective tax treaties.

The activities of the non-resident GE group entities being conducted from

the fixed place of business referred above are not of the preparatory or

auxiliary character.

The employees of GE India Industrial Pvt. Ltd. forms the sales teams of

the GE entities, such employees along with the expats have habitually

secured orders in India, wholly or almost wholly for the non-resident GE

group entities. The correspondence discussed above also indicates that

such employees have also participated in the price negotiations. The

various documents in the form of agreements/purchase orders/copies of

contracts also proves the active involvement of the employees of Indian

company and expats in the conclusion of contracts on behalf of such non-

resident GE group entities, therefore, GE India Industrial Pvt. Ltd. also

constitutes the agent other than an agent of independent status of the non-

resident GE group entities. This results into the creation of the dependent

agent PE as per the provisions of the tax treaties and business connection


ITA No.671/Del/2011

33

as per the provisions of Explanation 2 to Section 9(l)(i) of the Income Tax

Act, 1961. The activities of the third parties working for the GE group as

mentioned above also may constitute agency PE/ business connection of

the GE group entities.

It is possible that in respect of various projects relating to rendering of

services/supervisory services, such GE group entities will be considered

to have the PE as per the other paragraphs of the Article relating to the PE

of the respective tax treaties.

7.1 After having established that various GE group entities were making

sales in India with the active involvement of the PE of such entities in

India, then, considering the provisions of business profit article of the

respective tax treaties, the profits of the enterprise are liable to be taxed in

India to the extent attributable to the PE. This rule as well as the rules for

attribution of such profits are available in the respective tax treaties India

has signed with different countries of which such GE group entities are

tax resident.

7.2 Considering the fact that the sales are made to Indian customers

on regular basis and such GE group entities are physically present in some

form or the other in India and such physical presence has full role in these

sales. Therefore, the income accrues or arises to such GE group

companies in India. Such income accruing or arising is liable to be taxed

in India as per the provisions of Section 5(2) of the Income Tax Act.

1961.

7.3 The PricewaterhouseCoopers Pvt. Ltd. vide letter dated 24.03.2008

has also submitted the list of non-resident GE group companies, who have

rendered services in India and the payments are made by Indian

companies. The payments received by such companies from Indian

resident is income accruing or arising or deemed to accrue or arise in

India as per the provisions of Section 5(2) r.w.s. 9( 1) of the Income Tax

Act, 1961. Even if services are rendered from outside India, such

payments will be income deemed to accrue or arise in India as per the


ITA No.671/Del/2011

34

provisions of Section 9(1 )(vii) of the Income Tax Act, 1961. Such

amounts will also be taxable as fees for technical services or business

income depending upon the facts of the case and the respective tax treaty.

Such entities are listed under the business head aviation and from S. No. 3

to 17. These companies have not filed return of income, though their

income for various assessment years was chargeable to tax in India.

8. The Authorised Representative, PricewaterhouseCoopers Pvt. Ltd. has

confirmed that the non-resident entities, of which details are filed vide

letter dated 24.03.2008 and 26.03.2008, have not filed return of income in

India except in the case of Nuovo Pignone Spa, Italy, which has filed

return of income with Income Tax Officer, Ward 1(3), Ahmedabad.

9. The non-resident GE group company, namely GE Energy Part Inc.,

USA has made a sale of USD 21,83,146/- during F.Y. 2000-01 in India.

As mentioned above, the assessee has business connection as well as the

PE in India as per the provisions of Article 5 of the tax treaty between

both the countries and the income attributable to the PE/ business

connection is taxable in India. Since the assessee has not filed return of

income in India to that extent the income chargeable to tax has escaped

assessment. On the basis of material collected during or after survey

operations and discussed above, I have reason to believe that income

chargeable to tax has escaped assessment for A. Y. 2001-02. This belief is

formed on the basis of fact that assessee has not furnished return of

income although its income earned in India during the previous year was

chargeable to income tax. Considering the quantum of sales made, I have

reason to believe that income chargeable to tax, which has escaped

assessment amounts to or is likely to amount to more than Rs.1 lakh for

the year.

In this case, not more than 6 years have elapsed from the end of relevant

assessment year (i.e. A.Y. 200-0) and income of more than Rs. 1 lakh has

escaped, assessment, therefore, the Notice u/s 148 r.w.s. 147 of the

Income Tax Act, 1961 satisfies the time limit for issue of notice as

provided in Section 149 of the Income Tax Act, 1961.


ITA No.671/Del/2011

35

In this case, as mentioned above, assessee has not filed return of income

and no order u/s 143(3) or Section 147 has been made and more than 4

years have expired from the end of relevant assessment year, therefore,

the satisfaction of the Addl. Commissioner is required. Therefore, the

same is put up for necessary action.”

6. The ld. Sr. AR fervently argued, and rightly so, that the validity of

reassessment can be tested only on the basis of the reasons recorded by

the AO before issuing the notice u/s 148 and no cognizance can be taken

of any other material supplementing or justifying the reassessment. We

fully endorse this argument and will restrict ourselves only to the

reasons recorded for evaluating the validity of the initiation of

reassessment.

I. FACTUAL ASPECTS

7. Following points were raised on behalf of the assessee to contend

that the reassessment be set aside, which we will deal with in seriatim.

i. No name of the assessee, business transactions and the relevant year

appear in the reasons :-

8.1. The ld. AR argued that the reasons recorded by the AO for

initiating the re-assessment proceedings in the hands of the assessee

neither contain the name of the assessee nor its business transactions.


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36

8.2. We do not find any force in the above contention either qua the

name of the assessee or its business transactions. It can be seen that the

title of reasons contains the name of the assessee and the relevant year,

which reads: “Reasons recorded for issue of notice u/s 148 of the

Income-tax Act, 1961 in the case of GE Energy Parts Inc., USA for

assessment year 2001-02.” It is equally undisputed that in the reasons

recorded for other entities and other years, the name of the respective

assessee along with the concerned assessment year, prominently appear

in their title. Our attention has been drawn towards pages 11 to 13 of the

Departmental paper book no.2, which are the three Annexures to the

assessee’s letter dated 24.3.2008 addressed to the Addl. CIT, giving

year-wise and entity-wise figures of sales in India by the GE overseas

entities engaged in Energy business, Transportation business and

Aviation business. Such a list has been reproduced on page 20 of the

assessment order, which is also a part of the reasons recorded by the AO

and supplied to the assessee. Name of the assessee appears at Sl. nos.11

and 13 of this list under the broader category of `Energy business’. In


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37

fact, name of the assessee appears not less than six times in the reasons

(including two times in the Exhibits, which are part of the reasons).

8.3. Be that as it may, we find that the seven expatriates from GEII,

repeatedly referred to in the reasons, were positioned in India to head

the business operations of the GE overseas (referring to all the GE

Overseas entities collectively, as described by the assessee itself before

the AO).They were not deputed for the business of a specific GE group

company, but, for the worldwide GE group companies in one of the

three sectors, that is, Infrastructure (oil & gas, energy, rail, aircraft

engines and aviation financial services); Industrial (equipment services);

and Healthcare (Diagnostic imaging, information technology, services

and bio sciences). On a pointed query, it was candidly admitted on

behalf of the assessee that all the business interests of GE overseas

entities involved in the instant batch of 139 appeals were looked after by

any of such seven expats and there was no business of GE overseas

entities in India left out which was headed by some person other than the

above seven. This fact is further corroborated from pages 2 and 3 of the


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38

second paper book of survey documents, which is a communication

between P. Riccardo and others including Shah Jaimin and P. Robert.

The e-mail on page 2 from Mike Hosford to P. Riccardo, Shah Jaimin

and copy to Vivek Venkatachalam, records that: “We will have units

from AC (screw compressors and CC’s) NP (Recips) and TD (CC)”.

This e-mail shows that the business of GE Group was transacted by

expats and other staff from India not for a particular entity, but, on the

basis of nature of business. Once a project was acquired, the supplies

were, accordingly, to be made by the relevant entities dealing with such

products. In the above e-mail, Screw compressors and CCs were to be

supplied by AC, Recips by NP and CCs by TD. AC, NP and TD are

admittedly abbreviations of the name of three different companies of GE

group, who were to make supplies in respect of this contract with

Reliance Industries.

8.4. The fact that GE India (representing expatriate employees of GE

International Inc. located in India and employees of GE India Industrial

Private Limited i.e. GEIIPL engaged in providing marketing support

services for offshore sales into India, as described by the assessee itself


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39

in correspondence with the AO), were not working for individual GE

entities but for one or more of the above three lines of businesses of GE

in India in a combined manner, is further proved from page 240 of the

survey documents paper book, which reveals the personnel hierarchy of

`Infrastructure business’ of GE. At the top is P. Riccardo (designated as

Country leader, India). He is from GEII. Then, there are three persons

on the level below him, namely, Vivek Venkatachalam, an employee of

GEIIPL (designated as Regional Manager, New unit sales), Ujwal

Kumar (designated as ECLP Market developments) and Dewan Shukla

again from GEIIPL (designated as Country Manager - Services, Sales).

There are other persons in the hierarchy below them. Above discussion

belies the assessee’s contention that its name or its business transactions

do not appear in the reasons.

8.5. It was also argued by the ld. AR that the reasons do not refer to

any material relating to the assessment year under consideration leading

to the escapement of income. Even if some material exists for a

subsequent year, the ld. AR argued that the same cannot be considered


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40

for initiating reassessment for an earlier year. For this proposition, he

relied on certain judgments including CIT vs. Gupta Abhushan (P) Ltd.

(2009) 312 ITR 166 (Del) and SGS India Pvt. Ltd. vs. ACIT & Anr.

(2007) 292 ITR 93 (Bom). The ld. AR also placed a great deal of

emphasis on the fact that seven expats were not positioned in India

during all the years under consideration and hence there was lack of

sufficiency of reasons for such years in which they were not in India. It

was urged that in the absence of any other material evidencing presence

of the GE overseas entities in India, it could not be said that any business

was carried out in India at least for such years. This was countered by

the ld. DR, who took us through some material to decipher that this

contention is not correct.

8.6. Having gone through the above referred two judgments, it is

patent that there must be some material to indicate that income

chargeable to tax has escaped assessment for a particular year. If

material in the possession of the AO divulges escapement of income for

year ‘A’, no inference can be drawn, de hors some other relevant


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41

material, that similar income escaped assessment for year ‘B’ as well. In

the case of Gupta Abhushan (P) Ltd. (supra), some renovation was

carried out in the earlier years and on the presumption that such

renovation must have been done in the later years as well, the AO

initiated reassessment. The Hon’ble High Court approved the view

taken by the Tribunal that the escapement of income by means of

renovation carried out in later years was not borne out from the material

on record. Similarly, in the case of SGS India Pvt. Ltd. (supra), the

assessee incurred research and development expenses in the year one,

which were disallowed because of the transfer pricing adjustment and

the AO’s inference of escapement of similar income for the earlier year,

was held to be not sustainable. In our considered opinion, the position

as stated on behalf of the assessee is trite, which cannot be interfered

with.

8.7. However, on the facts and circumstances of the instant case, we

find that these judgments have no application. It is pertinent to note that

in the post-survey enquiries, but, prior to the issue of notice, the assessee


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group, vide its letter dated 16.3.2007, provided name of seven expats of

GEII who were working for GE overseas in India. Such persons, as per

their Assignment letters, were deputed in India for looking after the

business operations of GE overseas entities in India for a specific period

ranging from 2-5 years. The AO has noted in para 7 of the reasons that

the information regarding the employees of GE in India prior to the

present expats was not given by the GE group, but, there were persons

working for such sales throughout the period 1.4.2000 to till date.

8.8. The ld. AR vehemently argued that the AO wrongly recorded in

para 7 of the reasons that the information regarding the employees of GE

in India prior to the present expats was not given by the GE group. It

was stated that such information was never demanded and, hence, there

was no occasion of giving it as well. This was opposed by the ld. DR

who submitted that several rounds of meetings took place post survey

operations between the Department and the ARs of the assessee group

and some information including the instant one was orally demanded.

This was sought to be fortified by the fact that though, vide summons


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dated 2.3.2007, written requirement was made for giving figure of sales

of GE entities in India from 1.4.2003 onwards, but, the actual

information supplied by the assessee also covered the period 1.4.2000 to

31.3.2003 in addition to the information as required in writing for the

period 1.4.2003 onwards, which was orally demanded during such post

survey meetings. The ld. DR submitted that the information about the

expats working in India prior to the seven expats was also orally

demanded as was apparent from the reasons recorded by the AO.

8.9. The moot question which looms large before us is to decide if any

information about the employees of GE in India prior to the present

seven expats was called for. If the answer is in affirmative and the same

was not given, it will lead to an inference that other expats were working

in India for the GE overseas entities during the period starting from

1.4.2000 onwards, thereby, prima facie constituting PE of such GE

entities in India and vice versa. In this regard, it is relevant to note that

the AO categorically recorded in para 7 of the reasons dated 26.3.2008

that such information was demanded, but, not given by the GE group,


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which demonstrated that there were other expats working/making sales

of GE Overseas throughout the period 1.4.2000 onwards. The assessee

raised objections to the reasons recorded by the AO vide its letter dated

7.10.2008, whose copy is available on pages 1-16 of the assessee’s

fourth paper book. It is vivid that the assessee did not controvert this

fact. The assessee has taken several legal objections against the initiation

of reassessment, but did not deny correctness of factual assertions in this

regard in the reasons. The ld. AR relied on a para on page 14 of the

objections to buttress his contention that the assessee was never called

upon to furnish the details of expats for the earlier period. This para

reads as under:-

“As is apparent, the role of GEIIPL is limited to providing local and

routine marketing support services, with all critical functions

(including key decision making activities) within the value chain

being performed by the Company outside India. The role of GEIIPL in

the life-cycle of equipment' sale is preparatory, incidental and

insignificant. This is because the GE Energy business in operates

under a highly head quarter centric approach with the contribution of

GEEIPL personnel being limited to providing local inputs/insights

without any authority to conclude contracts on behalf of the Company

or otherwise bind the Company.”


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8.10. A plain reading of this para signifies that there is no denial of the

assertion recorded by the AO in para 7 of the reasons in this regard.

Notwithstanding the fact that the reasons were recorded on 26.3.2008

and the assessee did not raise any objection about the said aspect of the

matter and accepted the separate order passed by the AO rejecting such

objections, the assessee did not even challenge this aspect before the AO

during the course of assessment proceedings as well.

8.11. At this stage, it is relevant to note that the Hon’ble Supreme

Court in GKN Drive Shafts (India) Ltd. vs. ITO and Ors (2003) 259 ITR

19 (SC), has laid down a procedure to be followed upon the issuance of

notice u/s 148 of the Act. It has been held that: “The proper course of

action for the noticee is to file return, and, if he so desires, to seek

reasons for issue of notices. The AO is bound to furnish reasons within

a reasonable time. On receipt of reasons, the noticee is entitled to file

objections to issuance of notice and the AO is bound to dispose of the

same by passing a speaking order.” In a case before the Hon’ble

Bombay High Court in Crown Consultants Pvt. Ltd. vs. CIT (2014) 362


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46

ITR 368 (Bom), the assessee, challenging the issuance of notice of

reassessment u/s 148, contended that the alleged loan transaction in the

reasons was reflected in its financial statements as margin money which

it had received from its directors and their family members which was

reflected in Schedule ‘A’ to the balance sheet. The Hon’ble High Court

refused to accept this submission as the same was not taken in the

objections to the reasons for reopening. In view of this new stand not

taken in the objections, but, taken for the first time in writ petition, the

Hon’ble High Court held that the assessee cannot take up fresh

objections which the AO had no occasion to deal with by laying down

that : `Just as the revenue cannot improve upon its case for reopening

before the Court and but must stand or fall by the reasons recorded for

reopening the assessment, the same test would be applicable in case of

an assessee i.e. it must stand or fall by its objection to the grounds for

reopening of assessment. It is not open to the assessee to urge fresh

objections before the Court which the Assessing Officer had no occasion

to deal with, unless of course the notice to reopen is ex facie without

jurisdiction not requiring consideration of any argument such as beyond


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limitation.’ In view of this judgment, it is clear that the assessee cannot

raise a fresh objection before the tribunal which was not taken before the

AO.

8.12. Adverting to the facts of the instant case, we find that though the

AO categorically recorded the fact of expatriates working in India prior

to seven expats, the assessee neither challenged the correctness of this

fact recorded in its objections before the AO nor before the ld. CIT(A).

It is for the first time that the assessee raised this plea before the

Tribunal by way of a short note dated 3.6.2014. This shows that the

objection was taken for the first time after expiry of six years from the

recording of reasons. As this denial is contrary to the factual recording

by the AO, which remained unchallenged before lower authorities, we

are unable to accept such denial at this later stage in the light of the

judgment of the Hon’ble Bombay High Court in Crown Consultants

(supra).

8.13. Be that as it may, veracity of such recording by the AO can be

inferred from the ld. DR’s submission that the assessee group submitted


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information about the sales made by the overseas entities in India for the

period 1.4.2000 onwards, for which, again, there was no written

requirement. It is further noticed from page 338 of the survey documents

paper book, being, a letter from Price Waterhouse Coopers to some

person of the GE group at AIFACS Building, 1, Rafi Marg, New Delhi

intimating the approval by the RBI of change of nodal office of GEIOC

from Mumbai to New Delhi vide its letter dated 8th

March, 2000. It is

this address which was subjected to survey proceedings in 2007. Page

311 of the survey documents paper book is a copy of the lease

agreement for the official premises of the LO which shows that the lease

agreement of AIFCAS premises was renewed from 1st December, 2003.

The same page indicates that the earlier lease agreement dated 1st March,

1994 came to an end on 28th

February, 2003. These two documents

corroborate that the premises, subjected to survey proceedings on which

business activities of GE overseas entities were found to be carried on,

was at their disposal for all the years under consideration. These two

documents coupled with the GE group supplying information about the


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49

sales made by the GE overseas entities from the year 2000 onwards tilt

the balance in favour of the Department.

8.14. Above discussion boils down that the seven expats worked in

India for a period of 2-5 years covering some of the years and for the

prior period covered in this batch of appeals, some other expats were

working in India for the GE overseas entities in a similar manner.

8.15. To sum up, we jettison the contention of the ld. AR that the

reasons for reopening do not refer to the name of the assessee or its

business activities for the year under consideration.

ii. No assertion in reasons that any person in India entered into contract

on behalf of assessee.

9.1. The ld. AR then contended that there is no assertion in the reasons

that any person in India entered into contract on behalf of the assessee

and hence the reassessment be set aside on this score. Au contraire, the

ld. DR took us through the relevant parts of the reasons to falsify the

claim of the assessee.


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9.2. We do not concur with the submissions put forth on behalf of the

assessee in this regard. Some documents found during the course of

survey zeroed in the possibility of the GE overseas entities conducting

full-fledged business in India, which got fortified from post-survey

enquiries divulging more specific information on the business of the

assessee carried out from India. Para 4 of the reasons categorically notes

that the survey and post-survey enquiries transpired that the GE Group

was engaged in various sales activities in India for which seven business

heads, viz., Dan Nalawade, Riccardo Procacci, Wllliam Blair, Ashfaq

Nainar, Kenneth Peirson, Sameer Aggarwal and Prat. Kumar, mostly

expats from GEII, were appointed to head Indian operations, with the

support staff provided by GEIIPL and also third parties. The assessee

also submitted part information regarding such employees, being, their

Assignment letters, job responsibilities, self appraisal etc. The GE

group/assessee, in response to summons dated 02.03.2007, also admitted

that all the GE overseas entities in the line of Infrastructure, Industrial

and Healthcare had presence in India. It has been noted in para 7 of the

reasons that `the expats were deputed in India for undertaking the


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51


administration, sale functions and after sales activities and their teams

were continuously carrying out the business of various entities of the GE

group, which made sales in India from the above stated office premises

in Delhi and other places of businesses in India, which constituted PE of

such GE overseas entities in India as per para 5 of the respective DTAA

and further such activities were not of the preparatory or auxiliary

character. The AO, on the basis of such information gathered during the

course of survey and post-survey enquiries, came to conclusion vide

para 6 of the reasons that various GE group entities, separately named in

the Table, which covers all the GE overseas entities under consideration,

were carrying on business and effecting sales in India. Details of

business and the sales made by such entities during the period

01.04.2000 to 31.03.2006 form part of the reasons by way of Annexure.

It is ergo abundantly clear that the AO has clearly asserted in the reasons

that GE India carried out full-fledged business activities and made sales

in India for all the GE overseas entities. This contention fails.


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iii. No assertion in reasons that income escaped assessment because of

failure of assessee to disclose fully and truly all material facts

10.1. The ld. AR also challenged the initiation of reassessment by

contending that there was no assertion in the reasons that income

chargeable to tax escaped assessment because of the failure on the part

of the assessee to disclose fully and truly all material facts necessary for

assessment. Reliance was placed on certain decisions to bring home the

point that the reassessment needs to be quashed in the absence of a

specific allegation in the reasons about the failure of the assessee to

disclose fully and truly all material facts necessary for his assessment.

This was strongly rebutted on behalf of the Revenue.

10.2. We are again not persuaded to concur with the argument of the

assessee on this issue. It is significant to note at this stage that the

assessee did not file its return of income for any of the years under

consideration prior to notice u/s 148 of the Act. Para 6.1 of reasons

records that the assessee company had not filed return of income for any

year. Para 8 further records that the Authorised Representative


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confirmed that the non-resident entities had not filed returns of income

in India except in the case of Nuovo Pignone Spa, Italy, which filed

return of income with Income Tax Officer, Ward 1(3), Ahmedabad.

10.3. The decisions referred to by the ld. AR have been rendered in the

context of proviso to section 147, the relevant part of which provides

that : `where an assessment under sub-section (3) of section 143 or this

section has been made for the relevant assessment year, no action shall

be taken under this section after the expiry of four years from the end of

the relevant assessment year, unless any income chargeable to tax has

escaped assessment for such assessment year by reason of the failure on

the part of the assessee ….to disclose fully and truly all material facts

necessary for his assessment, for that assessment year.’ As the assessee

had not filed its return of income in first instance before issue of notice

u/s 148, there could not have been any way of disclosing fully and truly

all material facts necessary for assessment.

10.4. The view canvassed by the ld. AR that the AO failed to record in

the reasons that income chargeable to tax has escaped assessment, is


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again fallacious. It can be seen that the AO has conclusively recorded

that the income of the assessee was chargeable to tax because of the

Indian operations of the GE Overseas, which established a business

connection under the Act and also PE under the DTAA and the absence

of the assessee to file a return of income led to the escapement of

income. In addition, para 9 of the reasons, which has not been set out in

the assessment order, positively states: `The non-resident GE group

company, namely GE Energy Part Inc., USA has made a sale of USD

21,83,146/- during F.Y. 2000-01 in India. As mentioned above, the

assessee has business connection as well as the PE in India as per the

provisions of Article 5 of the tax treaty between both the countries and

the income attributable to the PE/ business connection is taxable in

India. Since the assessee has not filed return of income in India to that

extent the income chargeable to tax has escaped assessment. On the

basis of material collected during or after survey operations and

discussed above, I have reason to believe that income chargeable to tax

has escaped assessment for A. Y. 2001-02.This belief is formed on the

basis of fact that assessee has not furnished return of income although


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its income earned in India during the previous year was chargeable to

income tax’. Thus, the argument that there is no assertion in reasons that

income escaped assessment because of the failure of the assessee to

disclose fully and truly all material facts, does not hold water.

11. Foregoing discussion reveals that the following broader points

emerge from the reasons recorded by the AO along with the Annexures

to such reasons.

i. Neither the assessee nor any other GE overseas entity, except

Nuovo Pignone Spa, Italy, had filed returns of income in India

for any of the years under consideration.

ii. Survey u/s 133A of the Act carried out at AIFACS premises of

the LO of GEIOC in Delhi set up to undertake only the liaison

activities divulged that other GE overseas entities were carrying

on full-fledged business from there.

iii. The GE overseas entities in the lines of Infrastructure (oil &

gas, energy, rail, aircraft engines and aviation financial

services); Industrial (equipment services); and Healthcare

(Diagnostic imaging, information technology, services and bio

sciences) had presence in India.

iv. The GE overseas entities were engaged in various sales

activities in India, through expats from GEII with the support

staff provided by GEIIPL and also third parties during all the

years under consideration and further there was information

about entity-wise and year-wise sales made by all of them

during the period 01.04.2000 to 31.03.2006.


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v. The expatriates were deputed in India for undertaking the


administration, sale functions and after sales activities of the

overall lines of businesses of GE group irrespective of the any

specific GE group entity. They constituted PE of GE overseas

entities in India and their activities were not of the preparatory

or auxiliary character.

vi. These expats and their teams had at their disposal AIFACS

premises, which was apparently declared as a LO of GEIOC.

vii. Employees of GEIIPL along with the expats formed sale teams,

which habitually secured orders in India for the non-resident GE

group entities. Therefore, such expats and employees of

GEIIPL also constituted a dependent agent PE.

viii. The activities of the third parties working for the GE group also

constituted agency PE/ business connection of the GE group

entities.

ix. Profit of various GE overseas entities making sales in India with

the active involvement of their PEs, was liable to be taxed in

India as per Article 7 read with Article 5 of respective DTAA

and such income accruing or arising was also liable to be taxed

in India as per the provisions of the Act.

x. The assessee made sales of USD 21,83,146/- during the

F.Y. 2000-01 in India. The assessee had business

connection as well as PE in India and the income

attributable to the PE/ business connection was taxable in

India. Since the assessee had not filed return of income in

India, income chargeable to tax escaped assessment to that

extent.


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12. Now the question arises whether the above extracted reasons cited

by the AO justify the initiation of reassessment proceedings. Both the

sides have relied on certain decisions to drive their respective views.

13. Legal position on this issue is that the AO should have prima facie

grounds for forming a belief that there is some escapement of income,

which is a condition precedent for initiating reassessment. The Hon’ble

Supreme Court in Raymond Woollen Mills vs. ITO (1999) 236 ITR 34

(SC) has held to this extent by laying down that if prima facie some

material exists on the basis of which the Department can reopen the

case, it is sufficient to initiate reassessment. “The sufficiency or

correctness of the material is not a thing to be considered at this stage.”

The same view has been reiterated again by the Hon’ble Summit court

in ACIT vs. Rajesh Jhaveri Stock Broker (P) Ltd. (2007) 291 ITR 500

(SC). The Hon’ble Apex Court held in this later case that: “If the AO

has cause or justification to know or suppose that income had escaped

assessment, it can be said to have reason to believe that income had

escaped assessment. The expression cannot be read to mean that the AO


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should have finally ascertained the fact by legal evidence or

conclusion………at that stage the final outcome of the proceedings is

not relevant.” It further went on to hold that: “At the initiation stage,

what is required is ‘reason to believe’, but, not the establishment of fact

of escapement of income. At the stage of issue of notice, the only

question is whether there was relevant material on which a reasonable

person could have formed a requisite belief. “Whether the materials

would conclusively prove the escapement is not the concern at that

stage.” The Hon’ble jurisdictional High Court has also laid down

similar proposition in several judgments including Areva T & D, SA vs.

Asstt. DIT (2012) 349 ITR 127. In this case also, no return of income

was filed by the petitioner, similar to the case before us. Upholding the

initiation of reassessment, the Hon’ble High Court held that: “in any

case, it is well settled that at this stage only prima facie view is to be

taken to determine and decide whether there are reasons to believe that

income has escaped assessment. Whether or not any income of the

petitioner is chargeable to tax in India, whether the petitioner has a

permanent establishment in India, etc., are matters of merits which are


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to be decided in the assessment proceedings.” Similar view has been

taken by the Hon’ble Delhi High Court in Rolls Royce PLC vs. DIT

(International Taxation) (2011) 339 ITR 147 (Del) upholding the view

of the Tribunal in Rolls Royce PLC vs. DIT 2007-TII-32-ITAT-DL-INTL,

in which case, again, the assessee had not filed its return of income prior

to issue of notice and the Tribunal rejected the assessee’s challenge to

the initiation of reassessment proceedings by holding that the AO at that

stage was required only to form a prima facie opinion about the

escapement of income, which condition stood satisfied. In an earlier

decision, the Hon’ble Delhi High Court in Reach Cable Networks Ltd.

vs. DDIT (2008) 299 ITR 316 (Del) dismissed the writ petition

challenging the initiation of reassessment proceedings in which again the

assessee had not originally filed the return of income. In the words of the

Hon’ble Delhi High Court in Convergys Customer Management vs.

Asstt. DIT (2013) 357 ITR 177 (Delhi) : `at the time of issuance of

notices under section 148, the Assessing Officer is not expected to form

any definite or conclusive opinion about the taxability of the disputed


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amounts and that he is only expected to form a tentative or prima facie

belief regarding the escapement of income chargeable to tax’.

14. A cursory look at the above judgments fairly brings out that the

initiation of reassessment proceedings requires the AO to form a prima

facie view about the escapement of income. There is no need to

conclusively establish at that stage that such and such income escaped

assessment. If it emerges from the reasons recorded, which, in turn, are

based on some relevant material, that the AO had prima facie reason to

believe about income escaping assessment, the matter ends there insofar

as the initiation of reassessment proceedings is concerned. No fault can

be found with the jurisdiction of the AO to initiate reassessment.

15. Adverting to the facts of the instant case, we find that the survey

and post-survey enquiries conducted by the AO before issue of notice

u/s 148 gave sufficient material for the formation of a prima facie belief

that the income of the assessee had escaped assessment.

16. The ld. AR, contended that the AO did not prima facie prove in

reasons the existence of PE of the assessee in India and hence


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reassessment be set aside. To buttress such argument, he simply focused

on some of the e-mails etc. found in survey, which in themselves did not

establish that some revenue generating activity was carried out from

India. It is true that such e-mails do not establish the existence of PE in

India, but the other e-mails along with the remaining material collected

during the course of survey and post-survey enquires, which we will

elaborately discuss later, prima facie, compel a person, reasonably

instructed in law, to form a view about the existence of PE of the

assessee and other GE overseas entities in India. As such, we are

disinclined to accept the contention of the assessee that the AO was not

justified in initiating the reassessment proceedings.

17. It is apt to take note of the fact that the assessee had not filed return

of income prior to the issue of notice u/s 148. Explanation 2(a) to

section 147 provides that where no return of income has been furnished

by the assessee although his total income during the previous year

exceeded the maximum amount, which is not chargeable to income-tax,

it shall be deemed to be a case where income chargeable to tax has


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escaped assessment. Business carried on by the GE overseas entities in

India was never disclosed to the Department. Business connection of the

assessee in India, as set up by the AO, has not been denied. In that view

of the matter and the further fact that the sales were made by GE

Overseas in India through GE India, there was income of the assessee

chargeable to tax in India for which the return of income ought to have

filed and the benefit of DTAA, if any, could have been claimed as was

done pursuant to the notice u/s 148. The fact that the assessee had a PE

in India and no return was filed prior to the issuance of notice u/s 148

also brings the case within the fold of Explanation 2(a) to section 147.

In view of the foregoing discussion, we are fully satisfied that the AO

was justified in initiating reassessment proceedings.

II. TP ADJUSTMENT – NO OTHER INCOME ATTRIBUTION

18.1. The ld. AR contended that for the assessment year under

consideration, namely, 2001-02, the provisions of Chapter-X of the Act

were albeit not applicable, but, in the subsequent years of this assessee

and other assessees, the transfer pricing provisions are applicable qua


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the international transaction of `Marketing support services’ rendered

by GEIIPL to GE entities pursuant to agreement with GEIOC. It was

put forth that GEIIPL intimated the international transaction of

rendering Market support services to various AEs, and the AO accepted

the same at arm’s length price (ALP) without referring it to the Transfer

Pricing Officer (TPO) for the determination of its ALP for the AYs

2002-03 and 2003-04. It was further stated that though the AO made a

reference to the TPO for determining ALP of the international

transaction of rendering of Marketing services by GEIIPL for the A.Ys.

2004-05 and 2005-06, but, the TPO accepted the transaction at ALP. For

the A.Y. 2006-07, the TPO made certain TP adjustment, but, the

Tribunal restored the matter to the TPO for a fresh determination which

was still pending. For the A.Y. 2007-08, no TP adjustment was stated to

have been made in the hands of GEIIPL and the TP adjustment made for

the AY 2008-09 was pending consideration before the Tribunal. Copies

of the orders passed by the TPO for such earlier years were placed on

record. Relying on the judgment of the Hon’ble Supreme Court in the

case of DIT (I.T.) vs. Morgan Stanley & Co. Inc. (2007) 292 ITR 416


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(SC), the ld. AR contended that once a transfer pricing analysis is

undertaken, there is no further need to attribute profits to a PE. It was

contended that similar view has been taken by the Hon’ble Delhi High

Court in Adobe Systems Inc. vs. Asstt. DIT (2010) 240 Taxman 353 (Del)

and in DIT vs. BBC Worldwide Ltd. (2011) 203 Taxman 554 (Del.) For

this proposition, the ld. AR also relied on another judgment of the

Hon’ble Bombay High Court in Set Satellite (Singapore) Pte Ltd. vs.

DDIT (International Taxation) (2008) 307 ITR 205 (Bom). It was thus

contended that due to acceptance of the ALP of the international

transaction of rendering Marketing services in the hands of GEIIPL, no

further income could be attributed due to the PE. This argument, in the

opinion of the ld. AR, prima facie showed lack of reason to believe that

income chargeable to tax escaped assessment.

18.2. Sounding a contra note, the ld. DR contended that ALP of payment

made by GEIOC for marketing services rendered to GE overseas entities

by GEIIPL could not be considered as decisive insofar as the attribution

of profits to the PE is concerned. He relied on the judgment of the


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Hon’ble Allahabad High Court dated 5th

August, 2014 in LG Electronics

Inc. vs. Addl. CIT, in which similar contention raised on behalf of the

assessee was rejected after considering the judgment in the case of

Morgan Stanley (supra).

18.3. Having considered the rival submissions and perused the relevant

material on record, we find that the provisions of Chapter X are not

applicable to the A.Y. 2001-02, which is presently under consideration

in this appeal. In that view of the matter, this contention raised by the

assessee for the A.Y. 2001-02 does not stand any more. However, such

an argument merits consideration for other years of this and other

assessees.

18.4. Survey was conducted at the LO of GEIOC which had entered

into a Global Service Agreement (GSA) with an Indian company,

namely, GE India Industrial Pvt. Ltd. (GEIIPL) on 16th January, 2001.

A copy of this Agreement is available at pages 271-282 of the Paper

Book-1. In terms of this Agreement, GEIOC requested GEIIPL ‘to

provide certain services’. The services to be provided by GEIIPL under


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this agreement have been set out in clause 1 of the Agreement, which

states that GEIIPL (earlier called GE Power India) shall from time to

time provide the following support services to GEIOC and its affiliate

entities : -

“(i) Identify and seek business opportunities and provide information

relating to products and services of GEIOC and its affiliate entities to

potential customers in India;

(ii) Arrange appointments and meetings between existing as well as

prospective customers and GEIOC/its affiliate entities and provide

necessary support in client meetings and discussions;

(iii) Act as a channel of communication between customers and

GEIOC/its affiliate entities;

(iv) Investigate and provide information on current trends in business,

status of competing products, technological developments, pricing of

competitors, Government policies and other development, etc., that

would be of interest to GEIOC/its affiliate entities; and to


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(v) Provide an effective link between GEIOC/its affiliate entities and

various regulatory authorities from time to time on all business matters.”

18.5. Nature of support services to be provided by GEIIPL as per this

Agreement is inclusive of the services permitted by the Reserve Bank of

India to GEIOC at the time of setting up of its LO in India. The

permission was granted by the RBI for the purpose of undertaking

purely liaison activities, viz., to act as a communication channel

between head office and its customers in India. This permission was

granted subject to the conditions that except the proposed liaison work,

the LO will not undertake any other activity of a trading, commercial or

industrial nature or it shall not enter into any business contracts in its

own name without prior permission of the RBI. It was further directed

by the RBI that the Liaison Office will not charge any commission/fees

for liaison activities and the entire expenses of the LO will be met

exclusively out of the funds received from abroad through normal

banking channels. It was also directed that the LO shall not borrow or

lend any money from/to any person in India without prior permission


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and it shall not acquire, hold any immovable property, etc., except by

way of a lease for a period not exceeding five years.

18.6. It is clear that GEIIPL reported international transaction of

rendering `Marketing services’ to GEIOC and other GE overseas

entities, which was largely accepted at ALP except for some years, the

proceedings for which are still not final. When we consider the scope of

`Marketing services’ as per the Agreement in conjunction with the

permission granted by the RBI, it comes to the fore that the same are

restricted to `market support services’, such as, providing information

relating to products and services of GEIOC and its affiliate entities to

potential customers in India; providing necessary support in client

meetings and discussions; acting as a channel of communication

between customers and GEIOC/its affiliate entities; providing

information on current trends in business etc. that could be of interest to

GEIOC/its affiliate entities; and providing an effective link between

GEIOC/its affiliate entities and various regulatory authorities from time

to time on all business matters. All these largely fall in the realm of


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`liaison activities’, which by themselves do not constitute PE in India.

The authorities considered the Agreement and other related documents

for declaring that the ALP of `Marketing support services’ was by and

large at ALP. However, it turned out only during the course of survey

that the scope of actual services by GEIIPL far exceeded the market

support services as provided in the Agreement. 43employees of GEIIPL

were found to be involved in the actual conduct of business of GE

Overseas, effecting sales and acting under the leadership of expats, who

were heading various business lines of GE in India. Actual activities

carried out in India, far exceeded what was sanctioned by the RBI

and such extra activities are of commercial and trading nature,

which are exception to the rule of liaison office. In addition, the place

of GEIOC was being used as fixed place of business of GE Overseas.

Thus it is lucid that the actual functions performed by GEIIPL were

much more than those prescribed in the Agreement.

18.7. The ld. AR vehemently argued that only the activities approved

by the RBI for acting as a liaison office were carried out in India and this


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was established from the fact that the permission so granted by the RBI

was not revoked. He relied on an order passed by the Delhi Bench of the

Tribunal in Metal One Corporation vs. Dy.DIT (2012) 52 SOT 304

(Del)in which it has been held that since no violation of RBI condition

was shown, the LO was to be presumed to be engaged in the activity as

permitted. For the same proposition, he relied on another decision of the

Tribunal. This was opposed by the ld. DR

18.8. It is found as an admitted position that the RBI did not revoke the

permission to carry on LO nor any adverse action was taken against the

GEIOC who was allowed to open an LO in India. Under such

circumstances, a question arises if non-action by the RBI should lead to

a presumption that only the designated activities sanctioned to the LO

were carried on? In normal circumstances, when permission is granted

for setting up of an LO, and then renewed by the Reserve Bank of India

from time to time, the presumption is that only the sanctioned activities

were carried out. If, however, some direct evidence surfaces which

shows the actual carrying on of activities at much higher degree in


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qualitative terms than those sanctioned, then the RBI’s

sanction/continuation for an LO loses the character of conclusiveness in

this regard. In Jebon Corporation India, Liaison Office vs. CIT

(International Taxation) and Another (2011) 245 CTR 300 (Kar),

Liaison Office of a South Korean company was found to be carrying on

commercial activities of identifying the buyers, negotiating with the

buyers, agreeing to the price, procuring purchase orders and forwarding

the same to the head office and the follow up activities relating to

realization of payments from the customers. Such activities carried on

by the LO were not confined only to the liaison work. The assessee took

a similar stand as has been taken before us that the RBI’s permission

prevented the LO from carrying on commercial activities and the fact

that no action was initiated by the RBI against the LO, the decision of

the authorities that the assessee was having a PE in India, be reversed.

Jettisoning such a contention, the Hon’ble High Court held that: “Merely

because no action is initiated by RBI till today would not render the

findings recorded by the authorities under the IT Act as erroneous or

illegal.” In view of the direct judgment of the Hon’ble High Court on the


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issue, the contrary view taken by the Tribunal does not hold good to this

extent.

18.9. Adverting to the facts of the instant case, we find that the survey

conducted on AIFACS building showed that GE India was not merely

acting as a communication channel, permission for which was also only

with GEIOC and not the assessee, but, was actually indulging in

commercial activities. This argument of the ld. AR, therefore, fails.

18.10. We come back to the assessee’s primary argument for striking

down the initiation of reassessment because the arm’s length analysis

was accepted and no transfer pricing addition was made and hence there

could be no further attribution of income to the PE. The trump card of

the ld. AR is the judgment in the case of Morgan Stanley(supra),which

has been followed in the subsequent decisions referred to by the ld. AR

hereinabove. In this judgment, the Hon’ble Apex Court has held that

once a transfer pricing analysis is undertaken, there is no further need to

attribute profits to a PE. The Hon’ble Supreme Court countenanced the

Ruling of the AAR in principle insofar as an AE, that also constituted a


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PE, was remunerated at ALP taking into account all the risk taking

functions of the enterprise (emphasis supplied by the Hon’ble Supreme

Court). The Hon’ble Summit Court found that in such cases nothing

further would be left to be attributed to the PE. It, however, held that:

“the situation would be different if transfer pricing analysis does not

adequately reflect the functions performed and the risks assumed by the

enterprise. In such a situation, there would be a need to attribute profits

to the PE for those functions/risks that have not been considered.

Therefore, in each case the data placed by the tax payer has to be

examined as to whether the transfer pricing analysis placed by the tax

payer is exhaustive of attribution of profits and that would depend on the

functional and factual analysis to be undertaken in each case.” From the

above observations of the Hon’ble Supreme Court in Morgan Stanley

(supra) itself, it is unambiguously beyond any shadow of doubt that if

the transfer pricing analysis does not adequately reflect the functions

performed and the risks assumed, there would be a need to attribute

profits to the PE for those functions/risks which have not been

considered. The Hon’ble Allahabad High Court in the case of LG


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Electronics Inc. (supra) rejected contention similar to the one made

before us after duly noting the judgment in the case of Morgan Stanley

(supra). The position which, therefore, follows is that only if the ALP

has been determined taking into account all risks and functions of the

enterprise, nothing more can be attributed to the PE. If however, the

functions or risks etc. actually undertaken are more than those shown,

then exception to the rule laid down in the Morgan Stanley (supra) gets

attracted. There is no dispute in the cases relied by the ld. AR including

those of the Hon’ble Delhi High Court in BBC Worldwide

Ltd.(supra)and Adobe Systems Inc (supra) that the ALP therein was

determined by considering all the functions and risks actually

undertaken and there was no extra function performed or risk assumed

by the concerned enterprise warranting any further attribution of income.

18.11. When we revert to the facts of the instant case, it comes out that

the ALP of payment made by GEIOC to GEIIPL was determined only

w.r.t. the apparent services elaborated in the Agreement which are more

or less of liaison nature, not leading to the doing of some income


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generating activity. But in reality, the actual services rendered by

GEIIPL to the GE overseas entities under the leadership of expatriates

from GEII is alien to the Agreement. Such activities performed by

GEIIPL beyond the scope of the Service agreement have led to the

creation of the PE of the assessee in India. Such services have not been

remunerated at all. Since the transfer pricing analysis did not reflect

these functions performed by GEIIPL, there is a need to attribute profits

to the PE for those functions/risks that have not been considered.

Further, it came to light during the course of the survey and the post-

survey proceedings that the premises of the LO of GEIOC was being

used as a fixed place PE by the GE overseas entities including the

assessee, which fact was never disclosed to the Department. Our

attention has not been drawn towards any payment having been made by

the GE overseas entities to GEIOC on this account. As this international

transaction was not reported at all, there was no question of any transfer

pricing analysis of the same. These facts delineate that the instant cases

fall under the exception to the rule laid down in Morgan Stanley (supra)


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as reiterated in LG Electronics(supra). We, therefore, reject this

contention raised by the ld. AR.

III. SANCTION U/S 151

19.1. On an earlier occasion, the assessee raised an additional ground

before the tribunal, reading as under:-

“That on the facts and circumstances of the case and in law, the proceedings initiated under Sections 147/148 of the Act are without jurisdiction because the mandatory sanction required under section 151(2) of the Act has been granted by the Addl. DIT in a mechanical manner and without application of mind.”

19.2. The Bench, vide its separate order dated 10.06.2015, admitted the

additional ground. As such, we are now taking up this ground for

adjudication on merits.

19.3. The ld. AR contended that the sanction granted by the Addl. DIT

u/s 151(2) was without application of mind and, hence, the proceedings

flowing from such illegal sanction given in a mechanical manner, be set

aside. To buttress this submission, the ld. AR relied on the judgment of

the Hon’ble Delhi High Court in United Electrical Company P. Ltd. vs.


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CIT and Ors (2002) 258 ITR 317 in which notice issued u/s 148 was

quashed, inter alia, on the ground that the Addl. CIT accorded his

approval mechanically and without application of mind. He also relied

on the judgment of the Hon’ble MP High Court in Arjun Singh and Ors

vs. Asstt. DIT and Ors. (2000) 246 ITR 363 (MP) and another judgment

dated 14.10.2014 of the same Hon’ble High Court, in which sanction

given within 24 hours of time was held to be without application of

mind. The ld. AR contended that in the extant case also the sanction

was given by the Addl. DIT on the same date on which the reasons were

placed before him and hence the reassessment be set aside. These

arguments were opposed by the ld. DR, who contended that the sanction

was given by the Addl. DIT after due application of mind. He relied on

certain material to show that Addl. DIT was fully in touch with all the

goings-on in this case much prior to the formal placing of reasons for

sanction before him.


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19.4. We have heard the rival submissions and perused the relevant

material on record. The Addl. DIT though accorded sanction u/s 151 on

the same date, but, recorded his satisfaction in the following terms:

“DIT, Range-I, Intl. Tax, New Delhi.

For the reasons recorded by AO, I am satisfied that it is a fit case for issue of notice u/s 148 of the Act. Accordingly, approval envisaged, u/s 151(2) is granted.”

19.5. It is apparent from the recording of satisfaction by the Addl. DIT

that the same was not granted in a mechanical manner without

application of mind. The satisfaction was accorded `for the reasons

recorded by AO’. At this juncture, it is imperative to note that the Addl.

DIT, who gave the sanction u/s 151 of the Act was already seized of the

matter, prior to the issuance of notice u/s 148. This is borne out from the

fact that the reasons recorded refer to the information provided by

GEIOC, at least, vide its two letters dated 27.2.2008 and 24.3.2008

addressed by the GEIOC to the same Addl. DIT. These letters have

been placed at pages 7 and 18 of the Departmental paper book. The

material found in survey and post-survey enquiries is admittedly


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common to GEIOC and all the GE overseas entities under consideration.

This demonstrates the direct involvement of the Addl. DIT in the issue

much prior to the placing of reasons before him for sanction. Not only

the text of sanction but also the earlier involvement of the Addl. DIT in

the proceedings dealing with such reasons, go a long way to prove that

he did not act in a mechanical manner. Thus, it is wholly incorrect to

state that the sanction was granted by the Addl. DIT without application

of mind.

19.6. The facts in United Electrical Company (supra) are that the

‘reasons’ were de hors the facts available on record, and there was no

information which could provide foundation for the AO’s belief that the

assessee’s transactions with a disputed company were not genuine and

its income had escaped assessment. The Hon’ble High Court held that

the action of the AO was not sustainable. It was in this background that

the Hon’ble High Court found: “Even the Addl.CIT has accorded the

approval for action u/s 147 mechanically. If the Addl. CIT had cared to

go through the statement of V.K. perhaps he would not have granted his


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approval which was mandatory in terms of proviso to sub-section (1) of

section 151 as the action u/s 147 was being initiated after the expiry of

four years from the end of the relevant assessment year.” It is manifest

that the facts of that case lie in an entirely different compass vis-à-vis the

instant case. We are confronted with a situation in which the AO has

given detailed reasons running into more than 24 pages which prima

facie show escapement of income. It is in this background of the reasons

and the knowledge of the Addl.CIT of the issue in his official capacity,

that he is held to have granted approval u/s 151(2) after applying his

mind.

19.7. Similar is the position as regards the other judgment in the case

of Arjun Singh (supra). In that case, the Hon’ble High Court did not

find any definite material leading to the formation of belief that the

income chargeable to tax had escaped assessment. The Hon’ble High

Court found that : “Present is a case where there was no such material

or evidence, whatsoever, on the record. The Department failed to

disclose any such cogent definite material which can be the basis for


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reasons to believe as per the requirement of law.” It is in this backdrop

of the facts that the Hon’ble High Court found that merely vague,

unspecific conjectures and surmises styled as ‘reasons to believe’ were

forwarded to the CIT and not the alleged three reports on which the AO

is said to have based his reasons. “The CIT had no opportunity to apply

his mind to the actual materials and, accordingly, sanction accorded by

him is vitiated one.” The Hon’ble Court found that the CIT acted

mechanically by merely writing on the format ‘Yes, I am satisfied.’ It

was incidentally found that the exercise of giving sanction in less than

24 hours of time also went on to indicate that he did not apply his mind

at all while granting sanction. Again, we are at loss to appreciate as to

how this judgment advances the case of the assessee. The situation

before us is not that the Addl. CIT was not provided with actual material

and he simply wrote two-three words before giving sanction.

Application of mind, as emanating from his noting, gets duly endorsed

with his earlier involvement in the matter. The observations of the

Hon’ble MP High Court about 24 hours are to be seen in the context in

which they were made. This is not a statutorily provided time limit. The


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essence of such observations is that the Addl. DIT should not hurriedly

accord sanction in a mechanical way but properly examine the facts

before giving approval. Criteria for examining validity of a sanction is

the genuineness of reasons for re-assessment and application of mind by

the authority before granting sanction u/s 151 of the Act. We are

satisfied that in the given circumstances, the Addl.CIT committed no

mistake in granting sanction u/s 151(2) of the Act. This ground,

therefore, fails.

B. PERMANENT ESTABLISHMENT

20. The A.O. examined the taxability of income of GE Overseas under

the Act as well as the Double Taxation Avoidance Agreement. He did

not accept the contention of the assessee that the sale consideration was

not taxable in India as the title in respect of the equipments was

transferred outside India and the payments were also received outside

India. He held that a lot of activities relating to marketing and sales took

place in India. Expatriates from GEII along with the employees of

GEIIPL constituting the Indian team (GE India) were always involved


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and participated in the negotiation of prices. Such negotiations of prices

took place in India. The Indian customers discussed MOU terms with

the Indian team. These facts, in the opinion of the AO, were clear

indicators of the GE India securing orders for GE Overseas. He further

found that GE Overseas, by remotely sitting in foreign countries, could

not make any sales, without the active involvement of GE India. This

was held to be a business connection of GE Overseas in India in terms of

section 9 of the Act. The AO, therefore, held that all the profits did not

accrue or arise to the assessee in the foreign soil, but part of such profits

arising in India, corresponding to the activities carried out in India, was

chargeable to tax under the Act. Considering the fact that sales were

made to Indian customers on a regular basis and the GE overseas entities

were physically present in some form or the other in India and such

physical presence had full role in these sales, the AO held that the

business connection of GE Overseas was established in India and,

consequently, income accrued or arose to them in India. Such income

accruing or arising was held to be liable to tax as per the provisions of

section 5(2) of the Act. Simply put, the AO has made out a case that the


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GE overseas entities were having business connection under the Act as

well as permanent establishment under the DTAA in India in all the

years under consideration. The position about the taxability under the

Act has not been challenged by the assessee before us inasmuch as the

ld. AR has assailed only the existence of PE in terms of the DTAA,

more particularly, the activities carried out in India, which in his

opinion, were of preparatory or auxiliary character.

21. The AO finally held that all the GE overseas entities had PE in

India in all the years under consideration in two forms, namely, AIFACS

premises of GEIOC, constituting a `fixed place PE’; `GE India’

comprising of expatriates of GEII and employees of GEIIPL constituting

`dependent agent PE’. The ld. AR argued that none of the activities

carried out by the assessee in India lead to the creation of PE. We will

take up both the types of PE one by one for consideration and decision.

I. FIXED PLACE P.E.

22. In order to test the constitution or otherwise of a `Fixed place PE’

of the assessee in India, we will consider the Double Taxation


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Avoidance Agreement with the USA (hereinafter called ‘the DTAA’),

which applies to 17 entities. In fact, this is the only DTAA which has

been relied upon by both the sides in support of their respective

arguments. No reference has been made to any other DTAA. It is,

therefore, presumed that the language of Article 5 dealing with

Permanent Establishment of the other relevant DTAAs is no different

from the DTAA. Paras 1 to 3 deal with the fixed place PE. Before

examining the rival contentions, we consider it apposite to set out the

relevant parts of these paras, as under :-

`1. For the purposes of this Convention, the term ‘permanent establishment' means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

2. The term ‘permanent establishment' includes especially:

(a) a place of management;

(c) an office;

(d) to (l)

3. Notwithstanding the preceding provisions of this Article, the term ‘permanent establishment' shall be deemed not to include any one or more of the following :

(a) to (d)


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(e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character, for the enterprise.

23. Para 1 of Article 5 provides that the term ‘Permanent Establishment’

means a fixed place of business through which the business of an

enterprise is wholly or partly carried on. Para 2 gives certain illustrations

of the fixed place of business, such as, a place of management, an office,

a factory or a workshop etc. Para 3 starts with a non obstante clause qua

paras 1 and 2 and provides that the term ‘permanent establishment’ shall

be deemed not to include five instances, including clause (e), being,

activities which have a preparatory or auxiliary character. It is only

clause (e), which has been relied upon by the ld. AR for putting forth

that the assessee did not have any fixed place PE in India.

24. On a conjoint reading of the relevant parts of paras 1, 2 and 3 of

Article 5, it comes out that a permanent establishment means a fixed

place of business through which the business of an enterprise is wholly

or partly carried on and such fixed place is not maintained for activities

of a preparatory or auxiliary character. To sum up, the following three


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ingredients must be cumulatively satisfied for bringing a case within the

ambit of a fixed place PE :-

i) There should be fixed place of business;

ii) Business of foreign enterprise should be wholly or partly carried

on from such fixed place; and

iii) The activities carried out from such fixed place should not be in

the nature of a preparatory or auxiliary character.

25. Now, we will see if all these three conditions are satisfied in the

instant case.

26.1. The first condition is that there should be a fixed place of

business. The term ‘fixed place of business’ envisages that the place

should be at the disposal of the enterprise with some degree of

permanence. A place occupied just temporarily does not lead to

establishment of a fixed place PE. The enterprise should be in a position

to constantly use such place. What is relevant for the purpose is the

availability of the place at the disposal of the enterprise irrespective of

any ownership, lease or other occupancy rights. So long as a place is


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available with some degree of permanence to the enterprise for its use, it

satisfies the first condition for constituting a fixed place PE. Further, it is

not necessary that such place should be exclusively used for that

purpose. OECD Commentary on Article 5 of the Model Tax Convention

has discussed in paras 4 to 4.3 that the term ‘place of business’ covers

any premises, facilities or installations used for carrying on the business

of the enterprise whether or not they are used exclusively for that

purpose. Such place of business can also be situated in the business

facilities of another enterprise. Para 4.3 gives an example of a fixed

place PE, being, an employee of a company, who, for a long period of

time, is allowed to use an office of another company. Further, the

character of ‘fixed’ should be attached to such a place, which means that

it should be used with a certain amount of permanence. In a nutshell, if a

place is used by a foreign enterprise for carrying on its business in India

with some sort of regularity or permanence, it satisfies the first condition

of a fixed place PE.

26.2. Adverting to the facts of the instant case, we find that GE India

also comprising of the expatriates from GEII were permanently using


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the LO premises of GEIOC at AIFACS building. It was found during the

course of survey, that the expatriates were having specific

chambers/rooms allotted to them with their name plates affixed and they

were occupying the same. Secretarial assistance and staff was also

provided to them by GEIIPL/GEIOC. Their laptops, computers and

business related documents were in such specifically allotted rooms. The

rooms were at the constant disposal of these expats. Though the

AIFACS premises was taken on lease by GEIOC, but, the same was also

being constantly occupied by these expats, who, though on the pay roll

of GEII, were working in India for the GE Overseas entities. Not only

that, AIFACS building was also occupied by the employees of GEIIPL

who were working under the direct control and supervision of the

expats, who, in turn, were working for the GE overseas entities. This

position also gets vouched from page 248 of the Survey documents PB-

I, which is the Attendance sheet of the persons working in AIFACS

building at the time of survey, which, inter alia, records the names of

these expats and some employees of GEIIPL working with these expats.

The column `In time’ on this document shows the time of entering


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office, which, in most of the cases is close to 9 A.M. The fact that these

expats and employees of GEIIPL working under expats were working in

AIFACS building, has never been denied by the assessee. Thus the first

condition is satisfied.

27.1. Now we espouse the second condition, viz., business of foreign

enterprise should be wholly or partly carried on from such fixed place.

This specifies two things. First is that the business of foreign enterprise

should be carried on from such fixed place and the second is that the

carrying on of business of enterprise need not be wholly from here. Even

if business is partly carried on from such fixed place, the same would

constitute a fixed place PE.

27.2. It can be seen that the DDIT, prior to issuing a notice u/s 148,

required the GE group to furnish employment letters of all the

employees of GE overseas group companies working in India along with

their appraisal reports. The assessee furnished, vide its letter dated

16.3.2007, a list of employees of GE International Inc., US, who were

working in India, namely, Dan Nalawade, Riccardo Procacci, William


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Blair, Ashfaq Nainar, Kenneth Pierson, Samir Aggarwal and Prat

Kumar. Pages 94 to 115 of the Departmental PB no.1 are the

Assignment letters of these seven expatriates. These Assignment letters

are dated for the years 2004, 2006 and 2007. Tenure is fixed, namely,

five years, three years or two years, as the case may be. Such

Assignment letters indicate position of these employees of GEII working

in India. We will firstly discuss these expats in the light of their

Assignment letters, Self appraisal and Manager assessment, wherever

provided.

i. Kenneth Pierson - A copy of the Assignment letter of Kenneth

Pierson has been placed at page 104 of the Paper book, which shows his

position as `Sales & Marketing Manager’ of GE Transportation with the

anticipated start date of assignment as 1.5.2004 and the term of

assignment as thirty six months. Kenneth M. Pierson also gave Self

appraisal report, whose copy is available at page 190 onwards of the

paper book. Under the head ‘Accomplishments’, he claimed to have

maintained a constant focus on organic growth in emerging market. He:


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`Led the GS team through key activities – Sales, Cross-approval,

Partnership approvals, Marketing and Resourcing.’ Page 192 of the

paper book is ‘Manager assessment’ of the Self appraisal of Kenneth M.

Pierson. It has been mentioned that: ‘Ken is committed to growing the

India signaling business. Although he missed the orders target for the

year, 2006 was a significant year as his team closed $6M in orders and

has positioned the business to winning major deal in 2007.’ This shows

that Kenneth M. Pierson was working as ‘Sales and Marketing Manager’

of GE Transportation. Albeit he got a good number of orders, but,

missed the sales order target given to him for the year. His job

description has been given on page 209 of the Paper book, which shows

that he was to : `Build India Global Signalling team including sales,

marketing, engineering and project management; Facilitate the sales of

Products and systems through the permanent Indian staff; and Manage

relationships with various customers and stakeholders including Indian

Railways, municipal metro systems and installer partners’. This points

out that Kenneth Pierson, in his capacity of Sales & Marketing Manager,


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was given sales target in the normal course of his duties, which he could

not achieve.

ii. Ashfaq Nainar - A copy of the Assignment letter of Ashfaq Nainar

has been placed at page 114 of the Paper book, which shows his position

as `Transportation Solutions Team Leader’ of GE Transportation with

the anticipated start date of assignment as 1.7.2006 and the term of

assignment as thirty six months. Now, we take up the Self appraisal

report submitted by the GE group of Ashfaq A. Nainar to the AO, whose

copy has been placed at pages 57 onwards of the Departmental paper

book. He has been designated as ‘Regional Managing Director - Asia’

having area of responsibility of ‘all Asia except for China.’ It has been

mentioned here that he worked: “with various rail-road customers in the

region to develop business opportunities…………Responsible for

market segmentation analysis and identifying new business

opportunities.” His job responsibility has further been mentioned to

“Coordinate activities of the marketing and sales teams to develop

potential solutions. Identify capacity enhancing solutions for bottlenecks


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in the existing rail infrastructure of the railways.” His further job

responsibility has been defined on the same page to: `Evaluate the

team’s performance against the business goals and objectives. Provide

active coaching and mention the team and provide feedback to improve

overall team performance’. Page 58 shows that he has: “Excellent

customer negotiation and dispute resolution skills”. In Self appraisal

report, whose copy is available on page 61 of the paper book, he

mentioned under the head ‘Accomplishments’ to have: ‘Led Asia team

to $29M orders & $20.6 M sales’ by continuing double digit growth.”

Under the head ‘Expertise’, it has been mentioned that he: ‘Utilized 13+

years of sales experience and market instincts to enter new growth areas

such as commuter and propulsion markets in India.’ Then, there is the

`Manager Assessment’ on page 63, which shows that he made solid

progress in ’06 with Orders $27 and sales of $19($ 13 + 12%). Details

emanating from his Assignment letter, Self appraisal report and Manager

assessment speak volumes about his nature of work extending to

managing the entire business including sales and marketing, matching

with his designation.


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iii. Riccardo Procacci - A copy of the Assignment letter of Riccardo

Procacci has been placed at page 97 of the Paper book, which shows his

position as `Oil & Gas, India Country Leader’ of GE Energy with the

anticipated start date of assignment as 1.8.2006 and the term of

assignment as five years. Despite specific request by the AO, the GE

group neither supplied Self appraisal report nor the Manager’s

assessment report of Riccardo Procacci. As against the requirement of

the DDIT for tendering the Appraisal reports and Manager Assessment

of the seven expats and the employees of GEIIPL, the assessee furnished

such reports in respect of only two employees, namely, Kenneth Pierson

and Ashfaq Nainar, which we have discussed above. For the remaining

five expats, the assessee submitted that either the appraisal reports were

not due or were not completed. This intimation was given by the

assessee vide its letter dated 16.3.2007. The AO issued notice after a gap

of more than one year from the assessee’s above letter on 26.3.2008 and

till then such details were not furnished. As no difference in the business

model in India has been brought to our notice in respect of all the GE

Overseas entities, in our considered opinion, the Revenue rightly drew


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the inference that other expats were also doing activities similar to those

of Kenneth M. Pierson and Ashfaq Nainar.

iv. William Blair - A copy of the Assignment letter of William Blair has

been placed at page 100 of the Paper book, which shows his position as

`Country Director, GE India, Aviation & Rail’ of GE Transportation

with the anticipated start date of assignment as 1.1.2006 and the term of

assignment as thirty six months. His job description is available on page

210 of the paper book. It mentions the scope of responsibilities

including: “Organize local aviation team including commercial and

military sales leaders, track progress versus customer commitments and

develop personnel plans for training and growth; Conduct compliance

risk assessments, audits and support training for aviation team members

in India; Develop aviation growth strategy for India and obtain HQ

support for same.” It has been further stated that he will: `Develop

Aviation Growth strategy for Indian and obtain HQ support for same.’

This shows that whatever was required to be done at the top level for

business of GE Overseas in India, was being done by him. Despite


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specific request by the AO, the GE group neither supplied Self appraisal

report nor the Manager’s assessment report of William Blair.

v. Pratyush Kumar - A copy of the Assignment letter of Pratyush

Kumar has been placed at page 111 of the Paper book, which shows his

position as `Leader, GE Infrastructure, Ops-India’ of GE Transportation

with 1.6.2006 as the anticipated start date of assignment and the term of

assignment as five years. Major activities done by Pratyush Kumar have

been given on page 205 onwards of the Paper book, which show that he

was `GE Infrastructure Leader in India’, reporting directly to the Global

CEO of GE Infrastructure with specific role and responsibilities to:

“Help GE infrastructure business develop their strategy in India; Align

GE solutions with customer need; Put the key success factors in place;

Help shape policy to realize opportunities; and Facilitate business

development discussions.” Page 207 of the paper book shows his major

activities, which, inter alia, provide that he: “Facilitated dialoge between

GE Infrastructure’s Energy, Oil & Gas and Water business to develop

consistent T&Cs.” This shows that Shri Pratyush Kumar was looking


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after GE Infrastructure business in India at the apex level, inter alia,

developing business strategy in India and also finalizing consistent

business terms and conditions. Despite a specific request by the AO, the

GE group neither supplied Self appraisal report nor the Manager’s

assessment report of Pratyush Kumar.

27.3. The above facts indicate two broader things. First is that these

expats of GEII, who are highly qualified and some have even double

qualifications, worked in India for different business interests of GE

group and their activities were not confined to the business of a

particular entity. Second is that they were heading the operations of GE

overseas entities in India. From the Job descriptions and Appraisal

reports with the Manager assessment, wherever given, it is crystal clear

that the expats were India Country heads or working at the top positions,

managing the business, securing orders and doing everything possible

that could be done here qua the Indian operations of GE overseas

entities in India. It has nowhere been denied, and rightly so, that the

business model and role of the expats of GEII is similar qua all the


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businesses in India. This view is further strengthened from the fact that

the expats were not confined to a particular GE entity but working for

one of its three major business lines, viz., Infrastructure, Industrial and

Healthcare.

27.4. Now, we will discuss the role of the employees of GEIIPL in

assisting the expats in Indian operations of GE overseas entities, as

unfolding from the survey documents.

i. Nalin Jain - Pages 247 and 264 of the Survey documents PB contain

profile of Nalin Jain duly signed by him which shows his designation in

India as ‘Sales Director’ of GE Transportation, Aircraft engines. ‘Job

description’ has been given as ‘Market Intelligence and Support to

Headquarters.’ He has indicated his ‘Reporting Manager’ as William

Blair, who is one of the seven expats from GEII working in India for GE

overseas.

ii. Pritam Kumar - Page 277 of the Survey documents PB is a profile of

Pritam Kumar, an employee of GEIIPL with the designation of ‘Market

Strategy Manager’. He is reporting to Pierre Cante.


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iii. Yashdeep Sule - Page 280 contains details of Yashdeep Sule, again

an employee of GEIIPL. His job description is ‘Sales and Marketing for

signaling and locomotives.’ His reporting manager is Pritam Kumar as

discussed immediately hereinabove, who, in turn, is reporting to Pierre

Cante.

iv. Janak Chaudhary - Page 292 is report of Janak Chaudhary with

designation of `Vice President’ and job description of ‘Sector analysis

for growth in India.’ His reporting manager is again some foreign

employee.

27.5. Above narration of the nature of jobs carried out by these

employees of GEIIPL makes it amply clear that they were at the higher

positions in the general administration and, more specifically, sales of

GE Overseas, reporting directly to the expats, who, in turn, were India

country heads or occupying the peak positions in GE Overseas in India.

27.5. Having seen the job responsibilities of the expatriates and

employees of GEIIPL assisting the expats in the Indian operations of GE

Overseas, now let us have a look at some of the e-mails which are part


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of the survey documents, which fully justify the respective designations

given to them. As noticed earlier, the assessee in its replies to the AO

has used two terms, namely, GE Overseas and GE India. Admittedly,

GE Overseas has been referred to as all the `GE overseas entities’

collectively and GE India has been referred to as `expatriate employees

of GE International Inc. located in India and employees of GE India

Industrial Private Limited i.e. GEIIPL engaged in providing marketing

support services for offshore sales into India’. Use of the expression GE

India prima facie shows that firstly, the expats of GEII worked for GE

Overseas in India, and secondly, the role played by the employees of

GEIIPL is more than what has been set out in the Agreement.

27.6. Page 127 of the Survey documents PB-I is an e-mail from La

Moita of GE overseas entity to P. Riccardo (GE India) and others which

has been styled as ‘Confidential.’ This e-mail reads : “now the case of

BHEL as we have discussed it what is reported in the MOU reflects the

content of conversation we had (me, you and Riccardo) in the 2nd half of

August, when we were in India negotiating the deal.” This e-mail


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indicates that Riccardo (GE India) was fully involved in negotiating the

deal and was not merely acting as a communication channel.

Page 195 of Survey Documents PB – I is a communication from BHEL

to P. Riccardo (GE India) with a “Request to revise your offer for

present job in line with enclosed past similar order.” This document

shows that P. Riccardo (GE India) was directly making offers and also

entertaining requests from customers in India for revising the offer.

Page 82 of Survey Documents PB–I is an e-mail from Vivek

Venkatachalam (GE India) addressed to Prontera, etc. (GE Overseas)

with a copy to Riccardo Procacci (GE India). This is in respect of Infra,

oil and gas business relating to Nuovo Pignone Spa, mentioning that:

“Reliance would say that the effective date would fall sometime by end

of March 07. In India, the Financial closing is 1st April-31st March and

hence they requested us to change the period to 120 days for the WHRU

and we accommodated their request.” This shows that Shri Vivek

Venkatachalam, a part of Indian team, changed the terms and conditions

indicating negotiations and decision making taking place in India.


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Page 155 of Survey Documents PB–I is a document giving `2007

Outlook’, a PPT sent to John Rice (GE Overseas) by Riccardo (GE

India). On the left side of this document, there is a mention, inter alia, of

`Reinforcing sales team to improve long-term visibility and resources

planning’. On the right side, there is a noting of customer-wise sales

made. This has been bifurcated into two parts viz.: “Direct orders” and

“Inference orders.” Only “Direct orders” relate to operations in India.

Riccardo mentions on the second page of the PPT about key wins of

Reliance EWGP, IOCL Haldia and PII. This page also mentions Market

dynamics and revenues. He also refers to fierce price pressure and

profitability through local sourcing. This document evidences the full-

blown indulgence of GE India in running and securing orders for GE

Overseas from India.

Page 2 bottom and page 3 of Survey Documents PB–II is an e-mail from

Robert Prestwich (GE Overseas) to Vivek Venkatachalam, an employee

of GEIIPL (GE India): `the draft TSA (Technical Services Agreement)

for Reliance attached. I guess this needs to be reviewed by your


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aftermarket colleagues in India or does it need to go back to someone in

Florence’. This e-mail communication shows that the draft agreement

sent by Reliance Industries Ltd. to Mike Hosford (GE Overseas) was, in

turn, sent to India, namely, Vivek Venkatachalam (GE India), requiring

him to get it reviewed from his aftermarket colleagues in India.

Pages 32 and 33 of Survey documents PB-II are certain e-mails between

P. Riccardo, Vivek Venkatachalam (GE India) and Dino Catastine (GE

Overseas). P. Riccardo writes to Dino Catastine that: “The credibility of

the team is compromised. Why changes have been made to what we

agreed during the last two meetings and conference calls with RIL

without prior consultation with the local team? ………. All

communication to RIL must be passed through Vivek. If there is no

agreement on the subject let us discuss.” Then, Dino Catastine writes to

Riccardo saying: `We didn’t change our position with respect to the

conference calls we have partecipated’. Once again he writes to Ricardo

and Vivek saying: “Following our phone call, I confirm that, if

necessary to close the deal without any other change to our proposal, we


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can withdraw our request for a 2% price increase for different payment

terms and forward exchange rate instead of spot.” The above e-mails

show that Ricardo did not take it charitably when Dino Catastine made

some changes qua contract with RIL without prior consultation with the

GE India and he expressed his anguish by writing that the credibility of

the team was compromised. This leaves nothing to doubt that GE India

was in full command of the sales activities in India and not allowing GE

overseas even to interfere with what they had agreed with the customer

in India.

Page 39 of the Survey documents PB–II is an e-mail from Vivek

Venkatachalam (GE India) to P. Riccardo (GE India), discussing

another customer, namely, Bongaigaon Refinery and Petrochemicals

Ltd., requesting Riccardo: “to make Vittorio understand that we cannot

change the payment terms completely……….”. This shows that GE

India was not even allowing GE Overseas to change the terms and

conditions of a contract, what to talk of working as a mere

communication channel between the GE overseas and Indian customer.


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Pages 101-103 of the Survey documents PB–II are certain related e-

mails. First is an e-mail from Gianluca (GE Overseas) to a customer in

India (Pump Design Department of IOC) with the subject `Offer’. It has

been written: `As already advised by Mr. Procacci on October 12, 2006

we confirm as follows…’. This indicates that Procacci, a part of GE

India representing GE overseas, was finalizing the MOU with the Indian

customer and advising accordingly to the GE Overseas. Then there is an

e-mail from Rajesh Gupta, an employee of GEIIPL to Pump Design

Department of IOC with copy to P. Riccardo, conveying to the client

that: “As a special case, we have decided to accept the following

payment terms for the subject MOU.” This shows that the change was

permitted in the terms of MOU by GE India, which was conveyed by

Vivek to the customer, with a copy to Ricardo Procacci. This is a pointer

towards major activities in connection with orders and finalization of

terms and conditions of sales being done by GE India.

Page 104 of the Survey documents PB–II is an e-mail from Pump

Design Department to P. Riccardo (GE India) with a copy to Vivek


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Venkatachalam (GE India) and Rajesh Gupta (GE India) requesting the

Indian team to send the draft of MOU along with complete comments,

so that the same could be incorporated in the original MOU. This e-mail

shows that the entire correspondence with the customer in India was

being done by the Indian team head P. Riccardo.

Page 120 of the same PB-II is an e-mail from R. Procacci (GE India) to

Domenico (GE Overseas) with a copy to Vivek Venkatachalam (GE

India) reading: `As agreed we will try to put together a simple business

case in order to take the initiative forward to the need level of

evolution…..the approach must be as light as possible in order to match

the current business strategies and priorities.’ This shows GE India

(Procacci) advising GE Overseas of the way in which a case is to be put

up before the Indian client. Then La Motta (GE Overseas) replies to P.

Riccardo, Vivek Venkatachalam (GE India) and others referring to

‘Sales Team (Vivek and Riccardo)’. This again discloses that GE India

(Riccardo and Vivek) were Sales team and not merely a communication

channel as contended.


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27.7. Now let us examine the statement of Shri Chander Jain recorded

at the time of survey, whose copy is available on pages 1-14 of Survey

documents PB. He admitted in response to question No.10 that “GEIOC

is a representative office and all such represents of a corporate office of

GE in India.” In an answer to question no. 30 as to whether the

employees of GEIIPL work for GE group entities in its sale servicing

business in India, he said that: “there are certain number of people who

are engaged by GEIIPL towards marketing and sales. If any other person

are providing the above services I will provide the information.”

27.8. Shri Rupak Saha, whose statement was also recorded during the

course of survey, admitted in response to question no. 9 that he was

responsible for tax matters of all companies of GE group and, to this

extent, he was supported by GEIOC and other companies having

operations in India.

27.9. When we consider all the survey documents in harmony with the

Self appraisals, Manager assessments and Job responsibilities given

under the signature of the expats and employees of GEIIPL working for


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GE Overseas entities in India, it becomes absolutely clear that GE India

was conducting business of GE Overseas in India and was directly and

wholly involved in negotiating and finalizing the contracts. The Hon’ble

Supreme Court in CIT vs. Ahmedbhai Umarbhai & Co. (1950) 18 ITR

472 (SC) held that: `the profits attributable to the manufacturing

business are said to arise or accrue at the place where the manufacture is

being done and the profits which arise by reason of the sale are said to

arise at the place where the sales are made’. It is clear from the above

that marketing and sales are income yielding activities in themselves and

if the core activity of marketing and sale has taken place in India, then

profit from sale, accrues or arises in India alone and the same to that

extent should be charged to tax accordingly. The above discussion

leaves no room to doubt that in the instant case though business of GE

Overseas was partly carried out in India but the core of sales activity was

done from the AIFACS building, being the fixed place of business. The

second requisite also, therefore, stands satisfied.


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28.1. The third condition for constituting a fixed place PE, to the extent

it is relevant for our purpose, is that the activities carried on from such

fixed place should not be of preparatory or auxiliary character. If the

activities done from such fixed place fall within the purview of

‘preparatory or auxiliary’, the fixed place sheds its character of a

permanent establishment. The term `preparatory activity’ is understood

in common parlance as some job concerned with the preparation of the

main task to be undertaken. It is pursued before the taking up of the

actual activity. Black’s Law Dictionary 7th Edition at page 130 defines

the term ‘auxiliary’ to mean as ‘aiding or supporting, subsidiary.’ An

activity becomes auxiliary if it is in support or aid of the core income

generating activity. The Hon’ble jurisdictional High Court in U.A.E.

Exchange Centre Ltd. vs. Union of India and Ors. (2009) 313 ITR 94

(Del) considered a case in which the activity to be done through the

Liaison Office in India was of downloading the data; preparation of

cheques for remitting the amount; and dispatching the same through

courier by Liaison Office. The Hon’ble High Court designated it as

auxiliary to the main activity of the petitioner. The Hon’ble


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jurisdictional High Court in a more recent decision in National

Petroleum Construction Company vs. DIT (IT) (2016) 383 ITR 648

(Del), considering the earlier decisions in Morgan Stanley (supra) and

UAE Exchange Centre (supra), has held that activity of preparatory or

auxiliary character is remote from actual realization of profits and is

simply in aid or support of the main activity. In that case, the activities

of the liaison office in India were held not to contribute directly or

indirectly to the earning of profits by the assessee and the same being of

preparatory or auxiliary nature, did not constitute PE in terms of Article

5(3)(e) of the DTAA. The Hon’ble Supreme Court in Morgan Stanley

(supra) held that back office functions performed in India are the

activities of preparatory or auxiliary character, which do not constitute a

fixed place PE under Article 5(1) of the DTAA.

28.2. It is discernible from an outline of the above judgments rendered

by the Hon’ble Apex Court and the Hon’ble jurisdictional High Court

that the test for determining a preparatory or auxiliary activity is not to

see if the core activity can or cannot be performed without it. Rather, the

test is that such activity merely supports the core activity and does not


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per se lead to earning of income. If the activity carried on from a fixed

place in India is simply in aid or support of the core income generating

activity and is remote from the actual realization of profits, the same

assumes the character of a preparatory or auxiliary nature and falls

within clause (e) of Article 5(3) to bring the case out of the ambit of a

`permanent establishment’. One thing is clear from all the above

decisions cited by the ld. AR that the activities performed by those

assesses in India were either done by their liaison offices acting as

communication channel strictly as approved by the RBI or were in aid

and support of the main activity, not generating any income in

themselves.

28.3. Section 2(e) of Foreign Exchange Management (Establishment in

India of Branch of Office or Other place of business) Regulations, 2000

defines `Liaison office’ to mean a place of business to act as a channel

of communication between the principal place of business or HO and

entities in India, but which does not undertake any commercial/ trading/

industrial activity and maintains itself out of inward remittances


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received from abroad through normal banking channel. From the

definition of Liaison office seen in juxtaposition to the above referred

judgments, it becomes clear that acting as a communication channel is

an activity of auxiliary character and hence does not constitute a PE in

India.

28.4. Now, let us examine if the activities carried out in India by the

GE overseas entities through GE India are of preparatory or auxiliary

character. Main focus of the ld. AR was to establish that the activities

done by GE India were of preparatory or auxiliary character. As per the

application made to RBI and permission obtained, the LO of GEIOC

was to act as a communication channel between the head office and the

customers in India. Thus, there remains no doubt that the activities to the

extent of communication channel, as sanctioned by the RBI, being of

preparatory or auxiliary character, would not constitute any PE in India.

However, it has been noticed above that the actual activities carried on

from the fixed place of AIFCAS building did not remain confined only


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to those of a communication channel as was allowed by the RBI to

GEIOC at the time of setting up its LO in India.

28.5. The ld. AR harped on the assessee’s reply to the AO’s letter dated

14.11.2008 submitting four stages of sales to contend that the activities

carried out in India by GE India were merely preparatory or auxiliary.

He further relied on the roles and responsibilities of employees of

GEIIPL etc. supplied by the assessee to Department, pursuant to the

judgment of the Hon’ble High Court. Based on such submissions, it was

argued that all the activities carried out in India were of preparatory or

auxiliary nature and the core activity of earning income was done by GE

Overseas outside India.

28.6. We have gone through the aforesaid reply given by the assessee

which has been incorporated on page 45 onwards of the assessment

order and also the role and responsibilities of the employees of GEIIPL

etc. working in India, which we will now espouse for consideration. The

reply briefly explains the sales process in four stages, viz.,


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Stage 1- Pre-qualification;

Stage 2- Bid/no bid and Proposal development;

Stage 3- Bid approval and negotiations; and Stage 4- Final contract development and approval

28.7.1. The ld. AR contended that for the first stage of `Pre-

qualification’, the assessee stated before the AO that GE India’s role

comprises of assisting GE Overseas in identifying business

opportunities/leads. GE India collects and furnishes information

pertaining to market trends, key policy changes in the industry, etc.

Through these efforts, GE India is able to identify opportunities for GE

Overseas. Once GE India identifies a business opportunity, it

communicates the potential opportunity to GE Overseas. GE India

provides its marketing support services at this stage within the broad

framework and strategy formulated by GE Overseas.

28.7.2. It is clear from the above that the assessee admitted the role of

GE India (expats of GEII and the employees of GEIIPL) in identifying

business opportunities, collecting and furnishing information pertaining

to market trends, key policy changes in the industry, etc.


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28.8.1. For the second stage of `Bid/no bid and Proposal

development’, the ld. AR contended that the assessee stated during the

course of the assessment proceedings that on receipt of communication

from GE India regarding an identified viable business opportunity, GE

Overseas analyses the same independently for deciding whether the

same is worth pursuing. In case GE Overseas requires any

inputs/clarifications/ additional information (as part of its decision

making process), it may request GE India to provide the same. GE

Overseas examines the opportunity in detail and thus arrives at an

independent decision of whether to pursue the identified business

opportunity or not. Entire technical and commercial evaluation of the

opportunity at this stage is carried out by GE Overseas with inputs from

its various functional personnel spanning operations, finance, marketing,

etc. In the event, GE Overseas decides to pursue the identified business

opportunity, it commences the proposal development process and

intimates GE India in this regard. GE India (on receipt of such

intimation and under the explicit instructions of GE Overseas)

undertakes an interaction with the prospective end-customer so as to


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identify customer's requirements/ which are passed on to GE Overseas

as inputs in the proposal development process. As part of the proposal

development process, GE Overseas may seek inputs from GE India in

respect of various aspects such as pricing, preparation of bidding

package and other supplementary information.

28.8.2. It is noticed that the assessee has admitted a small role played by

GE India. Claim of independent decision taken by GE overseas has been

rightly held by the AO as erroneous. Various survey documents, as

discussed above, abundantly show GE India playing an important and

proactive role in the finalization of the deal and the terms and conditions

with customers in India. In reality, the major activities about sourcing of

customers and finalizing the deals with them were done by GE India in

consultation, wherever required, with GE Overseas. The assessee frankly

admitted in the same para that: `In some instances, the proposal

development is jointly run by the GE Overseas and GE India teams.’

This is also borne out from page 104 of the Survey documents PB–II, as

discussed above, which is an e-mail from Pump Design Department to


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GE India and copy to other members of GE India requesting the Indian

team to send the draft of MOU along with complete comments, so that

the same could be incorporated in the original MOU. Similarly, page

127 of the Survey documents PB-I shows that the MOU with BHEL

reflected the conversation what GE India and GE overseas discussed.

Thus, there is not even an iota of doubt that GE India was fully involved

in proposal development.

28.9.1. The ld. AR submitted for the third stage of `Bid approval and

negotiations’, that the assessee stated before the AO that once the

proposal/ bid/ tender have been put together as described in Stage 2

above, it is approved by the senior management during the Stage 3 and,

thereafter, submitted to the end customer. Subsequently, GE Overseas

may carry out negotiations with the customer, which may entail

addressing queries, if any, raised by the end-customer, seeking/

providing clarifications regarding work scope, pricing, etc required by

the end customer. For the fourth stage of `Final contract development

and approval’, the assessee stated that GE Overseas discusses the

outcome of the negotiation process internally amongst its various


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overseas functional heads/ approving authorities (operations, finance,

legal, etc) so as to decide whether or not to go-ahead with the contract

on the agreed terms and conditions with the customer. If the negotiated

contract terms are approved and accepted both by GE Overseas and the

end-customer, the contract documents are prepared and executed/signed

by GE Overseas. Local inputs are obtained from GE India at this stage

on a need basis.

28.9.2. Here again we find that the assessee’s submissions are only

partly true. Pages 101-103 of the Survey documents PB –II, as

discussed above, evidence GE India finalizing MOU with the Indian

customer, Pump Design Department of IOC, and advising accordingly to

the GE Overseas. Then, there is a mail showing that the change was

permitted in the terms of MOU by the Indian team, which was conveyed

by GE India to the customer, with a copy to another member of GE

India. GE India was negotiating terms with the Indian customers is also

borne out from page 195 of Survey Documents PB–I as discussed above,

whereby Indian customer was requesting GE India to revise the offer.


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Similarly, page 82 of Survey Documents PB–I, as discussed above,

shows that GE India changed the terms and conditions. In the like

manner, pages 2 and 3 of Survey Documents PB–II show that the draft

agreement by Reliance Industries Ltd. to GE Overseas was sent back to

GE India to get it reviewed from aftermarket colleagues in India. Pages

32 and 33 of Survey documents PB-II show that when GE Overseas

tried to contact directly with RIL, GE India objected to the same and

wanted the entire consultations only through the Indian team, which was

positively responded by GE Overseas. Page 39 of the Survey documents

PB–II again shows that it is GE India which was negotiating with Indian

customers and not allowing GE Overseas even to change the terms and

conditions.

28.10. At this juncture, it is significant to note that the assessee is not

dealing in off the shelf goods. Sales are made on the basis of a prior

contract. In such cases, customer’s requirements are first properly

understood and thoroughly examined; then commercial and technical

discussion meetings take place; then proposals are prepared after


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negotiations on technical and commercial aspects taking Indian laws and

regulations in consideration. These are all significant and essential parts

of sales activity, which have to be necessarily done in India by GE India.

Ordinarily, it is not the Indian customer, who would visit GE entities

overseas, but it is GE India, who has to have physical presence in India

and such presence is through the GE India team.

28.11. It follows from the foregoing discussion that most of the work

concerning the first stage of Pre-qualification was admittedly done by

GE India; for the second stage of Bid/no bid and Proposal development,

albeit the assessee admitted that in some instances, the proposal

development was jointly done by the GE Overseas and GE India teams,

but we have noticed from the survey documents that the core activities

of finding the customers and finalizing the deals with them were done by

GE India in consultation, wherever required, with GE Overseas; for the

third stage of Bid approval and negotiations and the fourth stage of Final

contract development and approval, again we have found that it was GE

India who was finalizing and changing the terms and conditions of MOU

with the Indian customers and GE Overseas was not even allowed to


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change any of the terms and conditions directly without consulting GE

India. The mere fact that the contracts were formally signed outside

India by GE Overseas does not in any manner undermine the doing of

core activity of sales by GE India. It is so for the reason that GE India

finds customers in India, understands their requirements, negotiates

necessary terms and conditions with them, prepares or helps in preparing

MOU and finalizes the deal with them. With the doing of all the above

activities, when MOU is prepared in India and the Indian customer signs

it first in India and then it is sent to GE overseas for signature, for all

practical purposes, it will have to be concluded that core sales activity

was undertaken by GE India alone.

28.12. Next leg of the submissions to bolster the argument of the

preparatory or auxiliary services rendered by GE India was reference to

the Roles and responsibilities of some of the expats and employees of

GEIIPL etc. supplied by the assessee to Department pursuant to the

judgment of the Hon’ble High Court. Based on such details, it was

argued that GE India was simply assisting GE Overseas and their role


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was not more than that of a support staff to GE Overseas, who, in turn,

was taking all the relevant decisions regarding sales in India.

28.13. At this point it is pertinent to mention that the Department

collected LinkedIn profiles of some employees of GE group, who in its

opinion were carrying on the operations of GE overseas in India. Such

details were filed before the Tribunal on an earlier occasion as additional

evidence. The tribunal passed a separate order admitting such evidence.

On a writ petition, the Hon’ble High Court vide its order dated

21.11.2014 set aside the tribunal order but required the assessee to

furnish the details of :`Names, designations, roles and responsibilities of

the employees of G.E. Group Companies, who were working in India

during the relevant period along with their educational qualifications’.

The assessee filed the information, whose copy has been placed before

us. Thus, it is clear that this information was given by the assessee after

the passing of the assessment order and no Income-tax authority had any

occasion to verify its veracity. This information is about the persons

engaged in Indian activities of GE overseas companies.


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28.14. Now let us see the status of role and responsibilities of some

members of GE India team as given by the assessee following the

Hon’ble High Court judgment and what transpired from the documents

found during the survey and post-survey proceedings but before issuing

notice u/s 147.

i. William Blair –

Annexure 5 to the assessee’s letter pursuant to the Hon’ble High Court’s

order explains his roles and responsibilities. It has been written that

William, inter alia,: `had limited involvement in a transaction as he was

primarily responsible to overseeing the functioning of his group. … He

was just acting as a communication channel and was responsible for

communicating GE overseas entity's position to the Indian customer and

transmitting customer's feedback to the GE overseas entity for further

inputs. William had no authority to finalize any deal. … All the pricing

and terms and condition decisions were taken by GE overseas entity and

he had no role in such decision making. … William's responsibility was

to take prior approval for initiating any dialogue with customers in India.


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Further, he had no authority to sign or execute any contract on behalf of

GE overseas entity and he never executed any contract with customers in

India.’ The above narration of role and responsibilities shows that

William was to act as a mere communication channel between the

customers in India and GE Overseas. In contrast, when we see his `Job

description’ given under his own signature in the documents as

discussed above, it transpires that he was to: “Organize local aviation

team including commercial and military sales leaders; Conduct

compliance risk assessments, audits and support training for aviation

team members in India; Develop aviation growth strategy for India and

obtain HQ support for same.” In other words, he was responsible for all

the activities of sales in India and only the requisite support was to be

taken from HQ. There is an apparent contradiction between what

William said in a document signed by him and the picture of his role

which the assessee portrayed after the conclusion of assessment. It goes

without saying that the primary document duly signed by William

showing his job responsibilities will have precedence over what the

assessee stated by way of Annexure after the termination of assessment.


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ii. Kumar Pratyush -

Annexure 12 to the assessee’s letter pursuant to the Hon’ble High

Court’s order explains his roles and responsibilities. It has been written

that, inter alia, : `Pratyush was not involved in any sales….. was never

involved in negotiating deals, terms and conditions and pricing for or on

behalf of any GE overseas entity. He was more involved in overall

management of client and government relationships including smooth

functioning of GE businesses in India’. In contrast, when we see his

designation in the Assignment letter as `Leader, GE Infrastructure, Ops-

India’ of GE Transportation reporting directly to the Global CEO of GE

Infrastructure and the `job description’ given by him in the earlier

referred documents of having a specific role to: `Help GE infrastructure

business develop their strategy in India; Align GE solutions with

customer need; Help shape policy to realize opportunities; and Facilitate

business development discussions’, it becomes manifest that the assessee

intentionally trimmed his role to justify its stand, which, being contrary

to the primary and source documents, cannot be accepted.


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iii. Nalin Ashfaq


Court’s order explains his roles and responsibilities. It has been written

that, inter alia,: `Ashfaq was responsible for providing support to the

Transportation Division ….He was not involved in any parts sales to

customers in India. At the relevant time, he was involved in promoting

the business of sale of parts to Railways and developing market

strategies. His role was to get into the discussion with Railways for

marketing development. Ashfaq had no signing authority’. This shows

that though the assessee candidly admitted in the post assessment letter

that Ashfaq was involved in promoting the business of sale of parts to

Railways and developing market strategies, but it also simultaneously

undermined his actual role by saying that he was not involved in any

actual sales. This is contrary to the Appraisal report showing his job as

also including to: “Coordinate activities of the marketing and sales

teams to develop potential solutions…. to Evaluate the team’s

performance against the business goals and objectives…..’. He has

mentioned his `Accomplishments’ in terms of sales and orders in India.


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Then, there is the `Manager Assessment’ on page 63, which shows that

he made solid progress in ’06 with `Orders and sales’. It is discernible

from the above discussion that the assessee did not properly state the

role and responsibilities of Ashfaq in the letter filed post assessment, on

which the ld. AR has relied to canvass that the role played by GE India

was only auxiliary and preparatory.

iv. Pierson Kenneth –


Court’s order explains his role and responsibilities. It has been written,

inter alia, that,: `Kenneth’s profile was more of locating opportunity and

providing marketing development strategies for the GE overseas

entity…. Kenneth had no authority to take any decision with respect to

the sale of product/parts in the signaling business. All prices and terms

and conditions were negotiated and finalized only by the GE overseas

entity. Kenneth being technical person did not have any authority to

negotiate any terms of contracts in India.’ Now let us have a look at his

Assignment letter, which shows his position as `Sales & Marketing


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Manager’ of GE Transportation. We fail to comprehend as to what a

`Sales & Marketing Manager’ will do without any authority to take any

decision w.r.t. sale. Fallacy of the assessee’s claim in the post-

assessment letter is established from the Self appraisal report of

Kenneth, which states that `He Led the GS team through key activities –

Sales, Cross-approval, Partnership approvals, Marketing and

Resourcing.’ Then there is ‘Manager assessment’ of the self appraisal of

Kenneth M. Pierson. It has been mentioned that: ‘Ken is committed to

growing the India signaling business, but missed the orders target for

the year’. This shows that Kenneth Pierson was given sales target,

which he could not achieve. Here, it is relevant to note the judgment of

the Hon’ble Allahabad High Court in Brown and Sharpe Inc. vs. CIT &

Anr. (2014) 369 ITR 704 (All) in which the Tribunal, while affirming the

order of the CIT (A), relied upon relevant documentary material in

arriving at the conclusion that the activities of the liaison office

established that it was promoting the sales of the assessee in India and

the Assessing Officer was justified in holding that the income

attributable to the liaison office was taxable in India. Upholding such a


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view, the Hon’ble High Court held that: `the Tribunal has correctly

noted that in the present case, the liaison office was promoting the sales

of the goods of the assessee company through its employees, to whom a

sales incentive plan was provided for achieving a sales target and the

performance of the employees was being judged by the orders secured

by the assessee.’ In the instant case also, it is clear that the sales targets

were assigned to the expats etc. and Kenneth Pierson, a `Sales &

Marketing Manager’, could not achieve the sales target given to him.

Going by the ratio decidendi of Brown and Sharpe (supra), it is palpable

that PE of GE Overseas was established in India.

v. Ricardo Procacci -


Court’s order explains his role and responsibilities. It has been written,

inter alia, that,: `Riccardo's role was to find out how India would be

relevant for Oil & Gas business and also to gather information on the

customers in such industry. … His role was limited to understanding the

needs of the customers in India and pass such information to the GE


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overseas entity in Italy. … At any point of time, he was not delegated

any power to take decision on behalf of the GE overseas entity. He was

acting as liaison between GE overseas entity and customers in India. His

responsibility was to liaise the relationship with Indian

customers….Most of commercial negotiations were done by the

commercial operation team sitting in Italy… Riccardo never took any

decision or negotiated on behalf of the GE overseas entity. … and he

was merely acting as channel between the Commercial team and the

Customers’. Here again, the assessee misled by stating wrong facts

about the working of Ricardo in the post-assessment letter. His

Assignment letter shows his position as `Oil & Gas, India Country

Leader’ of GE Energy. We have noticed from the survey documents

above that Ricardo was not only negotiating and finalizing the terms and

conditions with customers in India but also not allowing GE Overseas to

alter any such terms without the consent of GE India. The assessee did

not furnish his Appraisal report and Manager assessment despite a

specific request by the AO till the completion of assessment.


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vi. Nalin Jain (GEIIPL) -

Annexure 8 to the assessee’s letter pursuant to the Hon’ble High Court’s

order explains his role and responsibilities. It has been written, inter

alia, that,: `Nalin's role was to collect the market intelligence and initiate

a dialog with the Indian customer to understand their requirements…

His role was to pass on the information/queries between the overseas

entity and the Indian customer…Nalin has no authority to finalize any

deal. He was just acting as a communication channel…All the pricing

and terms and condition decisions were taken by GE overseas entity and

he had no role in such decision making’. Here again, we find that the

assessee did not come out clean. Survey documents show his

designation in India as ‘Sales Director’ of GE Transportation, Aircrat

engines. ‘Job description’ has been given as ‘Market Intelligence and

Support to Headquarters.’ He has indicated his ‘Reporting Manager’ as

William Blair, who is one of the seven expats from GEII working in

India for GE overseas entities.


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28.15. On a holistic consideration of the entire material before us, por

una parte, there is primary, specific and original substantiated material

relied by the ld. DR in the form of survey documents, Self appraisals,

Manager assessment and Job descriptions given under the signature of

such persons, showing the doing of core sale activity by GE India, and

por otra parte, there is somewhat contrary, generalized and

unsubstantiated material relied by the ld. AR in the form of the

downplayed role of GE India in four stages of sales and job

responsibilities stated by the assessee (not by the concerned employees)

after the completion of assessment, for a claim that GE India was

rendering services to GE Overseas as a mere communication channel

and such services were of preparatory or auxiliary character. It goes

without saying that the specific, primary, original and substantiated

material will have primacy over the generalized and unsubstantiated

material. But for the survey action unearthing the specific and primary

material divulging the doing of core sale activity by GE India, the reality

would have remained under the carpet and the assessee would have

continued to harp on its general submissions with downsized roles and


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underplayed responsibilities of GE India, to avoid the establishment of

PE in India.

28.16. Having seen that how the assessee degraded the designations and

lowered the roles and responsibilities of the expats etc. in the statement

filed pursuant to the Hon’ble High Court judgment, showing as if they

were mere communication channel as against the stark reality of their

performing all the core functions in India relating to sales, we will now

discuss the details filed by the assessee along with the same letter about

some other employees of GEIIPL who were engaged in the activities in

India. Despite showing all of them as doing mainly the work of

mediator, the assessee has also accepted involvement of some of them in

core activities, which is as under : -

i. Anand Mohan Awasthy – He is a Mechanical Engineer with Diploma

in Finance and is an employees of GEIIPL working since Financial year

2000-01. His designation is `Service Manager’. Annexure 1 discusses

his roles and responsibilities, being, `Responsible for aftermarket sales


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(spares) and services in respect of steam turbines and generators sold by

various GE overseas entities in India’.

ii. Anand Bansal– He is in Business Administration/Management and

is an employees of GEIIPL working since Financial year 2002-03. His

designation is `Sales Manger’. Annexure 2 discussing his roles and

responsibilities provides through the second bullet point that :`As a part

of his job, Anand’s role was to formulate marketing strategy for wind

energy related equipments in India, which involved, among other things,

determining a marketing strategy that helps distinguish GE products

from its competitors, assist potential customers in their study phase and

help define their needs for wind energy equipments.’ Bullet point 5 also

provides that :`From 2007 onwards, Anand was supporting BGGTS

(Joint venture of GE and BHEL), and was responsible to providing after

sale and maintenance support.’

iii. Sharmila Barathan - She is MA in Economics and also did her

Masters in International Business. She is an employee of GEIIPL. Her

designation is `Government Affairs’. Annexure 3 discussing her roles


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and responsibilities provides through the second bullet point that : `She

supports the team of Market Development and assist them through

shaping government policies. Her role was to provide recommendations

on the integrated energy policies and also to prepare enabling policies to

encourage investments in the Energy sector on behalf of GE.’

iv. Scott Bayman – He did his masters in Management and Bachelors in

Marketing. His designation is `President and CEO’. Annexure 4

discussing his roles and responsibilities provides through the first bullet

point that his: `primary role was to help set-up local support teams in

India.’ The second bullet point provides that he: `would ask for

headcount from HQ to create local teams. He was responsible for growth

of GE’s businesses in the Indian market. He was also responsible for

management of local business affairs, compliance practices, integrity

aspects, HR and also had oversight over capital business’.

v. Sujoy Ghosh – He is an Electrical Engineer and is an employee of

GEIIPL. His designation is `Sales Manger’. Annexure 6 discussing his

roles and responsibilities provides through bullet point five that `At that


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point of time there was a robust R Table process followed by all GE

businesses. Under such R Table process, no person sitting in India could

make a proposal to any customer in India without prior approval of GE

overseas entities nor could any person sitting in India negotiate or

finalize any contract in India.’ One thing is clear from the R Table

process that there was no blanket bar on GE group employees in India

for making proposals or to negotiate or finalize any contract in India.

Making a proposal envisages examining the opportunity in detail,

undertaking an interaction with the prospective end-customer so as to

identify his requirements, studying all the relevant aspects, finding out

the technical and financial viability, and then arriving at the ultimate

conclusion of the supplying and pricing. The only condition set out

under the R Table process on the Indian employees working for GE

overseas entities in India was that the approval was required to be sought

from the GE overseas before sending the proposal to customers in India.

The assessee has itself admitted through stage 2: Bid/no bid and

Proposal development of the `Sales process’ that: `In some instances, the

proposal development is jointly run by the GE Overseas and GE India


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teams. However, even in such cases, decision making authority

continues to remain only with GE Overseas.’

vi. Sanjeev Kakkar - He did his masters in Mechanical Engineering. His

designation is `Sales Director’. He is an employee of GEIIPL working

since 2000. Annexure 10 discussing his roles and responsibilities

provides through the sixth bullet point that:` As a part of his job,

Sanjeev would understand the requirements of clients in terms of

equipment required as well as financing required and thereafter,

communicate these requirements to the overseas entities.’ There is again

a reference to R Table process and it has been mentioned that he will not

sign or negotiate with any customer in India without any prior approval

of the overseas entities. This again shows that he was signing or

negotiating with customers in India, but with the approval of the GE

overseas. It has been specifically provided in the eighth bullet point that:

`Although Sanjeev and other people sitting in India were part of the

negotiating team with customers, however, at no point of time could

they commit to any negotiation with respect to terms and conditions or


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discount without prior approval from the overseas people listed on the R

Table.’

vii. Alpana Khera - She did her Engineering in Instrumentation and

Diploma in Marketing. Her designation is `Sales Manager’. She is an

employee of GEIIPL working since 2001. Annexure 11 discussing her

roles and responsibilities again refers to R Table process, which implies

that signing or negotiating with customers in India was allowed but with

the approval of the GE overseas.

viii. Ashish Malhotra - He did his Electrical Engineering and PG

Diploma in Marketing. His designation is `Sales Manager’. He is an

employee of GEIIPL working since 2001.

ix. Jaimin Shah - He did his Mechanical Engineering. His designation is

`Account Executive’. He is an employee of GEIIPL working since

2002. Annexure 21 discussing his roles and responsibilities provides

through the first bullet point that he :`was responsible for the aftermarket

sales services of equipment’.


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x. Vivek Venkatachalam - He did his B. Tech in Chemical Engineering.

His designation is `Executive – Business Operations’. He is an

employee of GEIIPL.

28.17. Taking above discussion into consideration, more specifically,

the primary, specific and original substantiated material in the form of

survey documents, self appraisals and Manager assessment etc., there

remains no doubt whatsoever that GE Overseas was selling its products

in India and the core activities in regard to sale, namely, pre-sale,

during-sale and post-sale were being carried out in India by GE India.

Notwithstanding the fact that the AO has categorically held that all the

core activities regarding sales were done by GE India, which has been

confirmed by the ld. CIT(A) as well, the assessee has failed to tender

any evidence to show that such a view canvassed by the authorities

below is wrong and in fact, such core operations were carried out in

India by some other means. Except for lip service that GE Overseas was

doing core sale activity and GE Overseas doing only preparatory or

auxiliary activities, the assessee did not place on record even an iota of

evidence to prove its contention. If we minutely consider the nature of


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activities done by GE Overseas and GE India, it clearly surfaces that GE

India was doing core marketing and sales activity and GE Overseas was

doing only auxiliary activities, in aid and support of the activities of the

marketing activities carried out by GE India.

28.18. Moreover, para 26 of the OECD Commentary discussing

exemption under sub-para (e), being activities of preparatory or auxiliary

nature, clearly provides that : `A fixed place of business which renders

services not only to its enterprise but also directly to other enterprises,

for example to other companies of a group to which the company

owning the fixed place belongs, would not fall within the scope of

subparagraph e)’. This part of the Commentary explaining `preparatory

or auxiliary activities’ makes it clear that if a fixed place of business is

used for rendering services to more than one companies of a group, as is

a case under consideration, then such services cannot be treated as of

preparatory or auxiliary character.

28.19. It is further pertinent to note at this stage that the permission to

set up LO at AIFACS building was given by the RBI to GEIOC and not


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to the assessee including all GE overseas entities covered in this batch of

appeals. Thus, none of the instant assesses had any LO in India. Be that

as it may, even the LO of GEIOC has been treated as its fixed place PE

and the exclusion claimed on the ground of preparatory or auxiliary

activities, has been denied up to the tribunal level. Not only that, even

penalty u/s 271(1)(c) on this score has been confirmed by the tribunal

on GEIOC and no material has been placed on record to demonstrate

that such penalty order has been reversed or modified by the Hon’ble

High Court in any manner. In view of the foregoing discussion, it is

manifest that the activities carried on by GE India from AIFCAS

building were of substantial and core and not merely preparatory or

auxiliary.

29. We, therefore, sum up that all the three conditions for constituting a

fixed place PE in terms of paras 1, 2 and 3 of the Article 5 are fully

satisfied as AIFCAS building is a fixed place from which business of

GE Overseas is partly carried on in India and the activities carried out

from such fixed place are not of preparatory or auxiliary character. Our


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view is also fortified by the judgment in Jebon Corporation India

(supra), the facts of which case are similar. In that case also the liaison

office was permitted to act as a communication channel and there was a

prohibition in doing any trading or commercial activities. A survey was

conducted on the premises of the LO which transpired that it was

actually carrying on commercial activities of identifying the buyers,

negotiating with the buyers, agreeing to the price, procuring purchase

orders and forwarding the same to the head office. The Department

came to hold that LO was PE under Article 5 of the DTAA and the

business profits earned in India through such LO was taxable in India.

Contention of the assessee that the buyers were placing orders directly

with the head office and making payments directly to the head office and

it was the head office which was directly sending the goods to the

buyers, was held to be not sufficient for holding that the activity done

by the LO was only liaison work. The Hon’ble High Court upheld the

view of the Revenue that PE was constituted in such circumstances and

business profits earned in India through this liaison office were taxable

in India.


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30. We find that the reliance of the ld. AR on DIT VS. E-Funds IT

Solutions (2014) 364 ITR 256 (Del) is misconstrued. In that case, the

tribunal held that the activities of e-funds India were not preparatory or

auxiliary in character in terms of paragraph 3 of Article 5 and hence PE

was created in India. The Hon’ble High Court did not concur with this

view by holding that, first and foremost, Article 5(1)/(2) should be

applicable but then if the activities fall within parameters of paragraph 3,

PE is not created for imposing tax in the second state. It was further held

that it did not follow that if activities are not covered in the negative or

exclusions set out in paragraph 3, a PE is established or deemed to be

established under paragraphs 1 or 2 of Article 5. We fail to comprehend

as to how the position stated by the Hon’ble High Court is missing here.

It has been discussed above that paras 1 and 2 of Article 5 apply and the

activities done by GE Overseas are not covered by para 3(e) of Article 5

of the DTAA.

31. In the like manner, the reliance of the ld. AR on CIT VS. Sumitomo

Corporation (2016) 382 ITR 75 (Delhi) for contending that no fixed


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place PE was constituted, is misplaced. We do not find any relevance of

this case to the issue under consideration. In that case, the question was

of supervisory PE, in which the tribunal held that assessee had no PE in

India and that supervisory services were not connected through any of its

other PE in India and that since supervision fee was earned in India, it

was taxable under Article 12(2) of DTAA at 20%. The Hon’ble Court

approved the view of the tribunal that FTS was liable to be taxed at 20%

under Article 12(2) of the DTAA. It is thus clear that this case does not

involve the issue as is under consideration in the extant appeals.

32. The ld. AR further contended that para 33 of the OECD

Commentary mandating that a person attending or even participating in

negotiations does not constitute PE and further unless a person is

authorized to negotiate all the elements of a contract (not some of them),

he does not constitute PE, applies to preparatory or auxiliary services in

the context of Fixed place PE. We are not in agreement with this

proposition as has been elaborately discussed infra while dealing with

Agency PE. It is therefore, held that AIFACS building constituted fixed


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place PE of the assessee and all the GE Overseas entities in this batch of

appeals.

II. AGENCY PE

33. The AO also held that GE India constituted agency PE. He noticed

that GE India was securing orders for GE overseas inasmuch as the

documents found during the course of survey revealed that there were

requests for proposals, copies of agreements, copies of MOUs and

various other papers indicating that the expatriates along with the

employees of GEIIPL participated in activities relating to the supply of

products. Such were raw documents wherein many changes were made,

which, in the opinion of the AO, established the participation of the

persons for the business of overseas entities in deciding the prices, terms

and conditions of the products sold in India. Here, not only one

customer of GE, but, many customers in aviation, oil and gas, energy

and transportation business were being looked after by these expats.

The assessee’s contention that there was no agency PE because GE India

was an agent of independent status, was turned down. The ld. CIT(A)


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echoed the view taken by the AO, against which the assessee is in

appeal before us.


material on record. Agency PE is subject matter of paras 4 and 5 of

Article 5 of the DTAA. Relevant parts of para 4, read as under :-

`4. Notwithstanding the provisions of paragraphs 1 and 2, where a person—

other than an agent of an independent status to whom paragraph 5 applies—

is acting in a Contracting State on behalf of an enterprise of the other

Contracting State, that enterprise shall be deemed to have a permanent

establishment in the first-mentioned State if :

(a) he has and habitually exercises in the first-mentioned State an authority

to conclude contracts on behalf of the enterprise, unless his activities are

limited to those mentioned in paragraph 3 which, if exercise through a fixed

place of business, would not make that fixed place of business a permanent

establishment under the provisions of that paragraph;

(b) to (c) ……’

35. Para 4 begins with a non obstante clause keeping aside the

provisions of paragraph 1 and 2. These two paragraphs, in turn, deals

with fixed place PE to mean a fixed place in the nature of office or

factory, etc., through which the business of an enterprise is carried on.

Insertion of non obstante clause qua paras 1 and 2 brings out that there


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is no need of a fixed place when agency PE is under consideration. Even

if an agent, referred to in para 4, operates from a non-fixed place, he will

still constitute PE of the enterprise, if other relevant conditions are

satisfied.

36. Next part of para 4 of Article 5 specifies a person who, acting in a

Contracting State on behalf of an enterprise of other Contracting State,

constitutes PE. Relevant part of para 4 in this context states : “where a

person – other than an agent of an independent status to whom

paragraph 5 applies -” This shows that the `person’ to constitute a PE,

subject to the fulfillment of other conditions, must be ‘other than’ an

agent of an independent status to whom para 5 applies.

37. At this stage, let us note down the prescription of para 5 of Article

5, which reads as under : -

5. An enterprise of a Contracting State shall not be deemed to have a

permanent establishment in the other Contracting State merely because

it carries on business in that other State through a broker, general

commission agent, or any other agent of an independent status,

provided that such persons are acting in the ordinary course of their

business. However, when the activities of such an agent are devoted

wholly or almost wholly on behalf of that enterprise and the


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transactions between the agent and the enterprise are not made under

arm's length conditions, he shall not be considered an agent of

independent status within the meaning of this paragraph.’

38. Para 5 is in two parts. First part provides that an enterprise of a

contracting State shall not be deemed to have a PE in the other

contracting State merely because it carries on business in that other State

through a broker, general commission agent, or any other agent of an

independent status, provided that such persons are acting in the ordinary

course of their business. A plain reading of this part indicates that the

enterprise shall not be deemed to have a PE if it carries on business in

the other State through certain ‘persons’ being a broker, general

commission agent or any other agent of an independent status, if such

persons are acting in the ordinary course of their business. It, therefore,

follows that the first part of para 5 refers to agents of independent status

who are acting in the ordinary course of their business. When this part is

read with para 4, it transpires that if an `enterprise’ of a contracting State

carries on business in the other contracting State through the agents of

independent status, it shall not be deemed to have a PE in the other


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contracting State. To put it simply, an enterprise of the USA shall not be

deemed to have a PE in India if it carries on business in India through

agents of independent status. Second part of para 5, which is absent in

the OECD Model Convention, makes out an exception to the first part.

Starting with the word `However’, it states that when the activities of

`such an agent’ are devoted wholly or almost wholly on behalf of that

enterprise and the transactions between the agent and the enterprise are

not made under arm’s length conditions, he shall not be considered an

agent of independent status within the meaning of this para.

39. The ld. AR contended that the second part of para 5 of Article 5 of

the DTAA envisages that the activities of an agent must be wholly or

almost wholly on behalf of that enterprise. He submitted that the

reference to the term ‘that enterprise’ draws its colour from an enterprise

whose PE is sought to be proved. If the activities of an agent in India

are devoted to more than one enterprise, such an agent will cease to be

an agent constituting PE of the US enterprise in India. He submitted that

the Revenue has admittedly made out a case that these expats from GEII


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and other employees of GEIIPL, etc., were rendering services to

multiple entities in one line of business and such activities were not

confined to a particular entity. It was, therefore, contended that

representation by such individual persons to multiple entities took the

case out of the purview of agency PE.

40. This was countered by the ld. DR who submitted that the

contention that an agent cannot constitute agency PE of multiple

enterprises is fallacious because the other ingredient of part 2 of para 5

clearly provides that the transactions between the agent and enterprise

must be at ALP. He submitted that if the transactions between an agent

and the enterprise are not at ALP, then, such agent gets covered within

the ambit of para 4 of Article 5. In a nutshell, his contention was that if

one of the conditions, namely, multiple enterprises or the transactions

not at ALP, is satisfied, the person becomes dependent agent

constituting PE of the USA enterprise in India. This argument was

further elaborated by pointing out that the fact of expats from GEII

making sales in India with the help of employees from GEIIPL etc. was


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never disclosed and further there was no reporting of such an

international transaction of making sales by these expats, etc., in India

for GE overseas. It was submitted that when there was no reporting of

any such international transaction, the question of the same being at

arm’s length price (ALP) did not arise.

41. We find force in the contention advanced by the ld. AR on this

issue. It is an admitted position that the expats were rendering services

to multiple GE entities in India. In fact, the ld. DR has successfully

contended, while arguing for the validity of initiation of re-assessment

proceedings, that the expats were looking after one of the three major

lines of business, such as Infrastructure etc., catering to various GE

overseas entities. Thus, there remains no doubt that GE India comprising

of expats and other employees of GEIIPL etc., were not working for a

particular enterprise, but, for multiple enterprises dealing in one of the

three major businesses of GE group. Reverting to part 2 of para 5 of

Article 5, it is clear that the activities of agent should be ‘devoted wholly

or almost wholly on behalf of that enterprise.’ The term ‘that


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enterprise’ refers to part 1 of para 5, being, an enterprise of a contracting

State. The term ‘enterprise of a contracting State’ has been defined in

Article 3(g) of the DTAA to mean: ‘an enterprise carried on by a

resident of a Contracting State.’ On a conjoint reading of part 2 of para 5

of Article 5 and Article 3(g), it is ostensible that part 2 of para 5 refers to

an agent looking after the activities of a single enterprise and not

multiple enterprises. The ld. AR has relied on the decision of the

Mumbai Tribunal in Varian India (P) Ltd. vs. Asstt. DIT (2013) 142 ITD

692 (Mum) in which it has been held that in order to be covered within

this part of para 5, it is necessary that the activities of agent must be

devoted wholly or almost wholly to one enterprise.

42. Now, we take up the contention of the ld. DR that since the

transactions were not at ALP, or for that matter, the international

transactions were not even disclosed, the assessee cannot claim not to

have an agency PE. There is no doubt about the fact that the

transactions of making sales by GE India (consisting of expats and

employees of GEIIPL etc.) on behalf of GE Overseas were not disclosed


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and, as such, question of deeming such transactions at ALP does not

arise. The ld. DR is right to this extent. However, we find that the

second part of para 5 clearly provides that a person shall not be

considered an agent of independent status only if he satisfies both the

conditions simultaneously. In other words, when the activities of such

an agent are devoted wholly or almost wholly on behalf of an enterprise

and the transactions between the agent and the enterprise are not at ALP,

then, he shall not be considered an agent of independent status. Use of

the word ‘and’ between the two conditions makes it amply clear that the

concurrent satisfaction of both of them is a prerequisite for not

considering such a person an agent of independent status. If only one

condition is satisfied and the other is not, the person is considered as an

agent of independent status. In the facts and circumstances of the instant

case, although the transactions were not at ALP, but, since GE India

worked for multiple entities, it fails to fall within the exception carved

out in part 2 of para 5.


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43. In spite of turning down the contention of the ld. DR in this regard,

we find that the GE India still qualifies as a person in para 4 of Article 5,

whose activities constitute agency PE in India. Reason for such a

conclusion is that part 1 of para 5 refers to an ‘enterprise’ carrying on

business in the other State through certain ‘persons’, who are agents of

independent status acting in the ordinary course of their business. It,

therefore, follows that the three categories of persons, namely, brokers,

general commission agent and any other agent are agents of independent

status acting in the ordinary course of their business. Thus, part 1 of

para 5 refers to agents of an independent status. We have noticed above

that part 2 of para 5 is an exception to part 1. When the twin conditions,

as noted above, are not satisfied, such an agent of independent status

‘shall not be considered an agent of independent status within the

meaning of this paragraph.’ It is, therefore, obvious that part 2 of

paragraph 5, firstly refers to an agent of independent status and, then,

says that if the conditions are not satisfied, then, such an agent of

independent status `shall not be considered an agent of independent

status’. It is further clarified from the use of words ‘such an agent’ in


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the opening portion of part 2 of para 5, which relates back to an agent of

independent status discussed in first part of para 5. The same analogy

follows from last few words of part 2 of para 5 which read that he `shall

not be considered an agent of independent status within the meaning of

this paragraph.’ Since the second part of the para 5 refers to ‘such an

agent’ and ‘an agent of independent status within the meaning of this

paragraph’, it, therefore, becomes utterly obvious that the exclusion

enshrined in part 2 of para 5 is of an agent who is otherwise of an

independent status. When we read both the parts of para 5, it follows

that whereas the first part refers to an agent of an independent status, the

second part carving exception to the first part makes it lucid that upon

the fulfillment of the given conditions, such an agent of otherwise

independent status shall not be considered an agent of independent status

within para 5. To sum up, the first part of para 5 refers to an agent of

independent status and the second part of para 5 refers to an agent of

independent status who is not considered an agent of independent status

because of the conditions set out in this paragraph.


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44. A foreign company may appoint or set up a person as an agent in

India for its exclusive purpose, who obviously will be called as an agent

of dependent status. The position will remain so, even if there are more

than one related companies of the same group. Such a person will now

be dependent on such more number of related companies of the same

group. He will not lose his character of an agent of dependent status

simply because he is looking after more than one related companies.

Such more than one related companies will be considered as one unit.

This position needs to be seen in contrast to an agent of an independent

status, whose normal course of business extends to multiple independent

customers. The fact that transactions between such an agent of

dependent status and multiple related enterprises are or are not at ALP,

is not relevant at the stage of establishment of a dependent agent PE in

India, which is created solely due to the nature of activities of such an

agent for the overseas entity(ies). This aspect assumes significance at the

later stage of attribution of income. If the transactions between the agent

and such related enterprises are at ALP, there can be no further

attribution of income to the PE because the agent got remunerated at


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ALP and his income got taxed in India. If, however, the transactions are

not at ALP, then, of course, income needs to be attributed to the PE. In

any case, the fact of the transactions at or not at ALP gains prominence

only when the question of attribution arises and not before that.

Establishment of PE is a stage anterior to the stage of attribution of

income, which gets concluded by seeing the nature of activities carried

on by such a dependent agent in the other contracting State.

45. We again revert to the language of para 4 of Article 5, which states

that ‘where a person – other than an agent of independent status to

whom paragraph 5 applies -’ fulfills the conditions as set out in this para,

he will constitute PE of the enterprise. It follows that the person must be

‘other than an agent of independent status to whom paragraph 5 applies.’

The term ‘other than’ an agent of independent status to whom para 5

applies, encompasses not only an agent of independent status covered

within second part of para 5, but also a dependent agent as such, who is

otherwise not an independent agent acting in the ordinary course of his

business. Thus, it is axiomatic the ‘person’ referred to in para 4 refers to


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an agent of dependent status as such and also an agent of an independent

status who is covered in part 2 of para 5. Exception to the first part of

para 5 created in part 2 is restricted only to `an agent of independent

status’, who is otherwise `acting in the ordinary course of his business’,

but for the time being, his activities are devoted wholly or almost wholly

devoted to one enterprise. On the other hand, if there is an agent of

dependent status per se whose activities are devoted to one or multiple

related enterprises, he will be directly covered within the scope of para

4 of Article 5 of the DTAA.

46. Coming back to the facts of the present case, we find that the

expats of GEII and employees of GEIIPL were appointed to act as agent

of multiple GE overseas enterprises. It is nobody’s case that they were

otherwise acting as agents of independent status working for other third

parties in India. This proves that expats and employees of GEEIPL acted

as agents of dependent status in the first place itself. Although, the

number of GE overseas entities looked after by each of them is more

than one, but the fact that such entities were in one of the three broader


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lines of businesses of GE group, makes them agents of dependent

status per se.

47. Facts of Varian (supra), relied by the ld. AR, are distinguishable

inasmuch as Varian India had provided services to five AEs for which

there were separate agreements and different payments. The Tribunal

recorded that the commission income was quite normal and the

transactions were at ALP. These facts are absent in the instant case. It

is found that the Hon’ble Supreme Court of Italy in Phillip Morris vs.

Amninistrazione Finanziaria (the tax authorities) (copy given at page 37

of Departmental PB-7) has held that: “a company having its seat in Italy

may take on the role of a multiple permanent establishment of foreign

companies belonging to the same group and pursuing a company

strategy; in such a case, the assessment of the activity carried on by the

Italian ………. must be done on a unitary basis and with reference to the

programme of the group considered as a whole.” In this case, the view

of an agent having multiple permanent establishments of foreign


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companies belonging to the same group, as is the case before us as well,

was countenanced.

48. It is further found that para 26 of the OECD commentary discussed

supra, though dealing with the activities of preparatory or auxiliary

nature, also acknowledges that a fixed place of business which renders

services to more than one company would not fall in exemption given in

subparagraph e) and hence, impliedly, constitute PE. We, therefore, hold

that GE India consisting of expatriates of GEII and employees of

GEIIPL etc., are the persons covered in paragraph 4 acting in India on

behalf GE Overseas entities.

49. Having seen that GE India is covered in the earlier part of para 4 of

Article 5 of the DTAA, it needs to be seen if the activities carried out by

them fall in any of the three sub-paras to constitute PE in India. Though

the AO held that the activities of GE India were covered under clauses

(a) and (c) of para 4, but the ld. DR has restricted his arguments only to

clause (a). We will also confine ourselves to examining the issue of

agency PE on the touchstone of clause (a) only.


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50. Clause (a) of para 4 of Article 5 of the DTAA provides that the

agent: “has and habitually exercises in the first mentioned stage an

authority to conclude contract on behalf of the enterprise, unless his

activities are limited to those mentioned in paragraph 3 which, if

exercised through a fixed place of business, would not make that fixed

place of business a permanent establishment under the provisions of that

paragraph.” A plain reading of sub-para (a) divulges that the agent will

constitute PE if he habitually exercises ‘an authority to conclude

contracts on behalf of the enterprise’ and his activities are, inter alia, not

limited to preparatory or auxiliary activities which if carried through a

fixed place would not make that fixed place a PE. The expression ‘an

authority to conclude contracts’ has not been defined in the DTAA. Para

5 of Article 5 of OECD Model Convention also uses the similar

expression, namely: ‘an authority to conclude contracts.’ Para 5 of

OECD deals with the same subject matter as para 4 of the DTAA with

the USA, namely, dependent agent PE. Paras 31-35 of the OECD

commentary deal with para 5 of the OECD Model Convention whose

language, is similar to para 4 of Article 5 of the DTAA.


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51. The ld. AR strongly relied on two sentences from para 33 of the

OECD commentary for driving home the contention that no agency PE

of GE overseas was constituted in India. First sentence is that “a person

who is authorized to negotiate all elements and details of a contract in a

way binding on the enterprise can be said to have exercised this

authority” and the second is that “the mere fact, however, that a person

has attended or even participated in negotiations…….. will not be

sufficient, by itself, to conclude that the person has exercised in that

State an authority to conclude contracts in the name of the enterprise.”

Relying on these two sentences, it was contended that even if some of

the elements of a contract were presumed to have been negotiated by GE

India, it would fall short of ‘all elements of a contract’ and even

participation in negotiations between GE Overseas and customers in

India will not lead to the establishment of an agency PE in India. This

argument was strongly refuted by the ld. DR who submitted that India

has clarified its position in 2008 on para 33 of the OECD commentary

by making it clear that it does not agree with both these sentences from

para 33 of the OECD commentary as in its view the mere fact that a


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person has attended or participated in negotiations in a State between an

enterprise and a client, can, in certain circumstances, be sufficient, by

itself, to conclude that the person has exercised in that State an authority

to conclude contracts in the name of the enterprise; and that a person

who is authorized to negotiate the essential elements of contract, and not

necessarily all the elements, can be said to exercise the authority to

conclude contracts. In view of this position of India, the ld. DR

contended that para 33 of the commentary, to the extent relied by the ld.

AR, should not be considered.

52.1. First, we take up the effect and consequence of India’s position

on para 33 of OECD Commentary given in 2008 pursuant to OECD

calling non-member countries, including India, to state their position on

OECD commentary in 2006. Para 3 of Introduction to the OECD

Commentary states that the member countries of the OECD (India is not

a member), when concluding or revising bilateral conventions “should

conform to this Model Convention as interpreted by the commentaries

thereon and having regard to the reservations contained therein.” It has


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further been provided that: “.… their tax authorities should follow these

Commentaries, as modified from time to time and subject to their

observations thereon, when applying and interpreting the provisions of

their bilateral tax conventions that are based on the Model Convention.”

It is, therefore, comprehensible from para 3 that the OECD commentary

is not universally applicable. If a member country of OECD has

expressed reservations on any of its parts, then, the Commentary stands

modified to that extent in so far as the interpretation of the Conventions

of that member country is concerned. Para 30 of the Introduction to the

OECD commentary further clarifies that: “Observations on the

Commentaries have sometimes been inserted at the request of member

countries that are unable to concur in the interpretation given in the

Commentary on the Article concerned. These observations thus do not

express any disagreement with the text of the Convention, but usefully

indicate the way in which those countries will apply the provisions of

the Article in question. ….’. This para also clarifies that sometimes

observations are inserted in the commentary at the instance of some

member countries who do not concur with the interpretation given in the


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commentary. This, again, clearly decodes that the OECD Commentary is

not conclusive in itself. If some member country has reservations on

any part of the commentary, it can express so. In such a situation, the

interpretation given in the Commentary bows down in favour of the

observations given by such country in so far as the Conventions of such

a country are concerned.

52.2. Due to the growing influence of non-member countries, the

OECD invited some non-member countries to give their position on the

OECD Commentary. It is pursuant to this invitation extended by the

OECD in 2006 that India gave its position in 2008 on para 33

disagreeing with the observations given in the two sentences. Such a

contrary position has a binding effect on all the Conventions which India

enters into after that date. It cannot retrospectively apply to the

Conventions in existence on that date, unless Convention(s) is/are

specifically modified. As a Convention is an agreement between two

countries, the same cannot be unilaterally modified by one country

declaring its suo motu position. It is so because when India entered into

a Convention with an OECD member country, it was implied that the


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OECD commentary explaining the relevant provisions, picked up from

the OECD Model Convention and incorporated in the respective

Convention, will be applicable. If India did not change its position by

altering the language of the DTAA, then, the presumption to be drawn is

that it was agreeable with the OECD commentary to the extent of

identical provisions incorporated in its Convention. To put it simply, the

reservations given by India in 2008 cannot retrospectively amend its

position qua the OECD commentary dealing with similar expressions

used in DTAA with the USA, which was admittedly entered into much

earlier. However, this does not apply to the Conventions entered into

after India stating its position on the OECD Commentary, in which case,

the position given by India overrides the OECD Commentary to that

extent. We are, therefore, not persuaded to accept the contention of the

ld. DR that India’s position on para 33 of the OECD commentary given

in 2008, should be read as a part of the Commentary interpreting the

DTAA.


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52.3. Notwithstanding the foregoing para, we are not prepared to read

each and every line of the OECD commentary as a part of the statute or

the DTAA by the doctrine of incorporation. After all, it is only an

interpretation of the OECD Model Convention. One should take

cognizance of the view given in the Commentary on a holistic basis and

not as emanating from individual and selective lines, which, at times,

may turn out to be overlapping in nature.

52.4. This brings us back to the paras 32 and 33 of the OECD

Commentary dealing with the expression ‘authority to conclude

contracts.’ Para 32.1 states that: `Lack of active involvement by an

enterprise in transactions may be indicative of a grant of authority to an

agent. For example, an agent may be considered to possess actual

authority to conclude contracts where he solicits and receives (but does

not formally finalise) orders which are sent directly to a warehouse from

which goods are delivered and where the foreign enterprise routinely

approves the transactions.” It is clear from the above para that lack of

active involvement by an enterprise may be indicative of grant of

authority to an agent. ‘Lack of’ does not mean absence of. It shows that


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if the enterprise is not fully involved in the transaction which is

concluded by an agent, it will give an inference of the agent having an

‘authority to conclude contract’ in the name of the enterprise. This

position given in para 32.1 is running contrary to the position contained

in para 33 on which the ld. AR has heavily relied to the effect that ‘all

elements and details of a contract’ must be negotiated to constitute an

authority to conclude contract in the name of enterprise. Further, the

immediately next line following the line on which the ld. AR has relied,

reads : ‘the fact that a person has attended or even participated in such

negotiations could, however, be a relevant factor in determining the

exact functions performed by that person on behalf of the enterprise.’

Thus, it is evident that the paras containing commentary on the

expression ‘authority to conclude contracts in the name of the enterprise’

do not have uniformity in the approach. There is some sort of

contradiction between them. The essence of the matter is that selective

reference to the OECD commentary is impermissible. One should

understand and follow the spirit rather than individual lines divorced

from the context. As the ld. DR cannot be allowed to solely rely on the


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lines forwarding the case of the Department, in the same manner, the

assessee can also not be permitted to pick up the lines buttressing his

point of view. In such a situation, one needs to harmonize the conflicting

lines to discover the real purport of the expression.

52.5. When we read clause (a) of para 4 of Article 5 in totality, what

comes out is that an agency PE is established if the person habitually

exercises an authority to conclude contracts so long as his activities are

not of preparatory or auxiliary nature. We have noticed above that the

term ‘preparatory or auxiliary’ refers to such activities which are simply

in support of the core income generating activity. They do not

comprehend negotiating ‘all elements and details of a contact.’ If we

accept the argument of the ld. AR as laying down the correct position,

then there would have been no need to qualify the expression àuthority

to conclude contracts’ with ùnless his activities are limited to those

mentioned in paragraph 3 which, if exercised through a fixed place of

business, would not make that fixed place of business a permanent

establishment ..’. This deciphers that the activities of the person leading

to the àuthority to conclude’ a contract, so as to form an agency PE,


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should not be restricted to exemptions for the constitution of a fixed

place PE, such as, preparatory or auxiliary etc. It means that the

activities of such a person should be of core nature and not merely

subsidiary to the main activities, which obviously rules out negotiating

all elements and details of a contract. Reading clause (a) in totality gives

a clear idea of constituting a PE when the activities of the person, other

than an agent of independent status, are not of preparatory or auxiliary

nature. It does not require doing of each and every aspect of the contract,

howsoever minor. Our view gets fillip from the judgment of the Hon’ble

Supreme Court of Italy in Phillip Morris (supra) in which it has been

held that: “the participation of representatives or employees of a

resident company in a phase of the conclusion of a contract between a

foreign company and another resident entity may fall within the concept

of authority to conclude contracts in the name of the foreign company,

even in the absence of a formal power of representation”. Having

discussed supra the nature of activities done by GE India, which are of

core nature and not merely preparatory or auxiliary, we hold that they

clearly indicate its authority to conclude contracts on behalf of GE


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Overseas. It is, consequently, held that GE India constituted agency PE

of all the GE Overseas entities in India.

53.1. Now, we take up the contention of the ld. AR that if the activities

carried out from the fixed place do not lead to conclusion of contracts in

India, then no fixed place PE is constituted. This was stated by referring

to the line from para 33, reading: “Since, by virtue of paragraph 4, the

maintenance of a fixed place of business solely for purposes listed in

that paragraph is deemed not to constitute a permanent establishment, a

person whose activities are restricted to such purposes does not create a

permanent establishment either.” He correlated this contention with two

sentences from para 33 of the OECD commentary supporting his case

and submitted that no PE is constituted even under Article 5(1) read with

5(3) of Indo-US DTAA if all elements and details of a contract are not

negotiated from the fixed place in India. Au contraire, the ld. DR

submitted that the requirement to conclude contracts as set out in clause

(a) of Article 5(4) of the DTAA is relevant only for the issue of

dependent agent PE and not a fixed place PE.


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53.2. We do not agree with the contention of the ld. DR. It is obvious

from Article 5(1) read with Article 5(3) of the DTAA that the term fixed

place PE means a place of business through which the business of an

enterprise is wholly or partly carried on and the carrying on of the

business does not include the activities specified in the exempted

categories, such as, doing of any preparatory or auxiliary activity. This

shows that core activity of business, in contrast to the preparatory or

auxiliary activity, must be done from such place so as to constitute a

fixed place PE. Concluding contracts is always a core activity, which is

more than a mere preparatory activity. If the fixed place is not involved

in such core activities, but is confined only to carrying on preparatory or

auxiliary activities, then it will not constitute fixed place PE.

53.3. We are not convinced with the proposition set up by the ld. AR

as well that if all elements and details of a contract are not negotiated

from the fixed place in India, then no PE is constituted under Article

5(1) of the DTAA. Paras 1-4 of Article 5 of the OECD Model

Convention deal with fixed place PE and its parallel in the USA - DTAA


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174

are paras 1-3 of Article 5. Para 5 and 6 of Article 5 of the OECD Model

Convention deal with agency PE and their counterpart in the USA -

DTAA are paras 4 and 5 of Article 5. Paras 31-35 of the Commentary

deal with agency PE as per Article 5(5) of the OECD Model

Convention. On the other hand, preparatory or auxiliary activities, etc.,

have been discussed in paras 23-30 of the OECD commentary. When

para 33 of the OECD commentary represents discussion on agency PE,

it is too much to argue that the same should be read for fixed place PE as

well. One needs to understand the rationale behind making reference to

para 4 in para 5 of Article 5 of the OECD. It has been done to indicate

that the habitual exercise of an authority to conclude contract in the

name of the enterprise shall constitute PE only if the activities of the

agent are not limited to those mentioned in paragraphs 4 i.e., of

preparatory and auxiliary character. Reference to para 4 of fixed place

of business has been made simply to avoid repetition of the activities

listed in clauses (a) to (f) in the language of para 5. Instead of

specifically referring to all the above activities, the OECD Model

Convention has incorporated them by making a reference to paragraph


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175

4(4) in it. Nothing more than that should be read from it. Similar is the

position qua the USA - DTAA. Be that as it may, we have already

repelled the contention of the ld. AR on applicability of the two

sentences from para 33 of the Commentary as the only necessary

conditions to constitute Agency PE. Ex consequenti, such a reference in

the context of a fixed place PE also fails.

C. ATTRIBUTION OF INCOME

54. Having held that various GE overseas entities were making sales

with the active involvement of their respective PEs in India, the next

question is attribution of income to such PEs, which is chargeable to tax

in India.

55. The AO required the assessee to make available year-wise India

specific accounts of GE Overseas. Financial statements of all the

entities for all the years were not submitted. An inability was expressed

on the ground that in some countries the accounts were not maintained

and they were covered in the group schemes. In the absence of such

information of entity level profits, the AO opined that working of actual


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entity-wise and year-wise profit was not possible. It was observed qua

the three entities for which the assessee furnished information, that there

was no regular trend in the profits and even GE Japan had closed its

trading business from the year 2002-03. For the other two entities also,

there were no reasons for the losses. Even notes to accounts, integral

part to the financial statements, were also not submitted, that could have

thrown some light on the losses/low profitability. The AO, therefore,

took the view that the profitability statements of these entities for

various years could not be used for attributing profits to Indian PE.

Having regard to Rule 10 (iii), the AO came to hold that the income of

non-residents was to be determined by: “any such other manner as …

may deem suitable.” Taking guidance from sections 44BB and 44BBB,

the AO estimated profit @ 10% of sales consideration to the customers

in India. Inspired by the decision of the Delhi Bench of the Tribunal in

Rolls Royce PLC vs. DDIT 2007-TII-32-ITAT-DEL-INTL, in which case

35% of the total profit was held to be pertaining to marketing activities,

the AO applied the same percentage to work out the income chargeable


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to tax in India. First appeal did not allow any relief. That is how, the

assessee is aggrieved against such attribution of income.


material on record. It is noticed that the exercise of attribution of income

by the AO is in two parts, viz., calculation of total profit from the sales

made by GE overseas entities in India, which, in the instant case, has

been worked out at 10% and second, attribution of such profit to

marketing activities, which the AO has taken at 35% of 10%. As

regards the first component, being, the estimation of profit on the sales

made in India, we find that the AO specifically required the assessee to

furnish year-wise entity-wise profits of GE overseas entities for the

operations carried out in India. Either such information was not given or

a part of the information given did not help in deducing the correct

amount of profit. In such circumstances, the AO was left with no

alternative, but, to estimate income on some rational basis. He invoked

the provisions of Rule 10(iii) and estimated profit at 10% of sales made

in India. Rate of 10% was applied by drawing strength from sections


ITA No.671/Del/2011

178

44BB and 44BBB, which, in turn, are special provisions for computing

profits and gains in connection with the business of exploration, etc. of

mineral oils/operation of aircraft in the case of non-residents. In our

considered opinion, the approach of the AO in estimating income at 10%

of sales made in India, in the given circumstances, is perfectly in order

and does not require any interference.

57. As regards the second component of the share of marketing

activities in the total profit, the AO applied 35% by taking assistance

from the decision taken by the Delhi Bench of the Tribunal in the case of

Rolls Royce (supra). The said order of the Tribunal stands affirmed by

the Hon’ble Delhi High Court in Rolls Royce PLC vs. DIT(IT) (2011)

339 ITR 147 (Del). Delhi Bench of the Tribunal in ZTE Corporation vs.

Addl. DIT (2016) 159 ITD 696 (Del) has also attributed 35% of the

profits attributable to marketing activities in India. We find force in the

arguments advanced by the ld. AR that there can be no hard and fast rule

of attribution of profit to marketing activities carried out in India at a

particular level. In fact, attribution of profits to PE in India is fact based,


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depending upon the role played by the PE in the overall generation of

income. Such activities carried out by a PE in India resulting in

generation of income, may vary from case to case. Attribution of

income has to be in line with the extent of activities of PE in India.

58. Adverting to the factual matrix of the case, the assessee

demonstrated before the AO by way of a chart on pages 87-90 of the

assessment order that the nature of activities done by Rolls Royce in

India were more than those done by GE overseas entities. Similar chart

has also been given showing difference in the activities carried out by

ZTE Corporation in India vis-à-vis the assessee. From such a

comparative analysis, we are satisfied with the contention advanced by

the ld. AR that the activities carried out by Rolls Royce and ZTE

Corporation in India are not similar to those done by the PEs of GE

overseas entities in India. While discussing above the nature of

activities performed by GE India in generating sales of GE Overseas in

India, we have elaborately taken note of the lead role played by GE

India and GE overseas playing only a supporting role. In such


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circumstances, we cannot approve attribution of whole of 35% of the

profits relating to sales and marketing to the PE in India. Considering all

the relevant facts and adopting a holistic approach, we hold that GE

India conducted core activities and the extent of activities by GE

Overseas in making sales in India is roughly one fourth of the total

marketing effort. Ergo, we estimate 26% of total profit in India as

attributable to the operations carried out by the PE in India. Therefore,

as against the AO applying 3.5% to the amount of sales made by the

assessee in India, we direct to apply 2.6% on the total sales for working

out the profits attributable to the PE in India.

D. INTEREST U/S 234B

59. The ld. AR contended that interest u/s 234B has been wrongly

charged from some of the GE overseas entities which are in appeal

before the Tribunal in relation to the assessment years 20007-08 and

2008-09. The same was requested to be cancelled. To support his

contention, the ld. AR relied on the judgment rendered by the Hon’ble

Delhi High Court in one of the GE overseas entities which has since


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been reported as DIT (IT) vs. GE Packaged Power Inc. (2015) 373 ITR

65 (Del). It was stated that the AO levied interest u/s 234B in all the

appeals starting from AY 2001-02 till 2008-09. The appeals for the

assessment years 2001-02 to 2006-07 were routed through the CIT (A),

who deleted such levy of interest. The deletion of interest was

confirmed by the Tribunal. In further appeals by the Revenue, the

Hon’ble High Court in the aforecited case also upheld the deletion of

interest u/s 234B. This was opposed by the ld. DR who referred to an

earlier judgment of the Hon’ble Delhi High Court in DIT (IT) vs. Alcatel

Lucent USA Inc. (2014) 264 CTR 240 (Del) in which levy of interest was

approved. The ld. DR submitted that the facts of the instant case are

similar to Alcatel Lucent USA Inc. (supra).

60. We are not inclined to accept the contention advanced on behalf of

the Revenue in this regard. The Hon’ble Delhi High Court in assessee’s

own group cases involving identical facts has approved the cancellation

of the levy of interest u/s 234B for the assessment years 2001-02 to

2006-07. Facts relating to the A.Ys. 2007-08 and 2008-09 instantly


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before us, are, admittedly, similar to such facts considered and decided

by the Hon’ble Delhi High Court. When there is a judgment of the

Hon’ble jurisdictional High Court directly in assessee’s own case and

the facts and circumstances for the later years are similar, there can be

no question of applying the ratio decidendi of another judgment laying

down a different proposition. It is more so, when the earlier judgment

was also considered by the Hon’ble High Court in a later decision in

assessee’s own case. In view of the foregoing discussion and

respectfully following the precedent in assessee’s own case for the

immediately preceding assessment years, we are satisfied that the

interest u/s 234B has been wrongly charged for the A.Ys. 2007-8 and

2008-09. The same is hereby cancelled.

61. Before parting, we record our deep appreciation for illuminating

arguments put forth on behalf of both the sides on the issues in the

appeal. Further we want to make it clear that the ratio decidendi of all

the decisions relied on by both the sides has been duly taken into

consideration while passing this order. However, we have desisted from


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specifically referring to certain cases relied on by both the sides in the

present order either due to their irrelevance or repetitive nature.

62. In the result, the appeal is partly allowed.

The order pronounced in the open court on 27.01.2017.

Sd/- Sd/-

[SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated, 27th January, 2017.

dk

Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT (A)

5. DR, ITAT

AR, ITAT, NEW DELHI.


IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : C … · 2018-03-25 · (i) GE Power Services...

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